COVID-19 Stimulus Checks and Debt Collectors

Millions of Americans are receiving their stimulus checks from the federal government during this time. Many of these Americans have judgments against them or active garnishments from previous creditors or debt collectors. This causes a problem as to who is entitled to the funds — can the consumer keep them or does the debt collector have a right to garnish them? Many federal benefits are exempt from garnishment, but there has been little guidance on the status of the stimulus checks.

As CNN reports:

A loophole in the law could mean some of those who are most in need of the emergency aid don’t get the money. About a third of Americans — some 71 million adults — have debt in collections and could be impacted, according to the National Consumer Law Center.

…

Despite the bipartisan push, Treasury hasn’t issued new guidance. The agency did not respond to a request for comment Wednesday.

In a letter to the Secretary of the Department of Treasury Steven Mnuchin, Senators Sherrod Brown and Josh Hawley suggest the following:

Treasury has the authority—and must exercise it—to also protect CARES Act direct payments from being seized to satisfy garnishment orders for private debts (except for child support payments). Under current Treasury rules, two months of Social Security, Supplemental Security Income, and other federal payments are protected from being garnished by private debt collectors.3 Treasury can also apply this rule to protect the CARES Act direct payments from private debt collectors. Alternatively, Treasury can exercise the authority provided under Section 2201(h) of the CARES Act to issue new rules or guidance to protect the direct payments from private debt collectors.4

Footnotes omitted.

Due to the lack of guidance, the best approach may be to:

To avoid having the stimulus payment garnished by a debt collector, monitor your bank account closely and take out the money as quickly as possible, suggests Lauren Saunders, associate director at the National Consumer Law Center.