Research Laws In Your State
Some states previously passed their own laws to protect stimulus funds from private debt collections. Make sure you know what measures your state put in place. Even if you have an account in collections, you might not have to worry about your stimulus funds being forfeited to the collector if state law forbids it.
How To Protect Your Stimulus Check From Creditors
You’ve likely already thought through the most obvious way to protect your economic recovery paymentâbut you’ll want to protect yourself, too. Here are the steps.
- Opt for a mailed stimulus check when possible and cash it.
- Withdraw any stimulus payment deposited into your bank account as soon as possible. If a levy is in place before you make the withdrawal, you could lose your money .
- Spend the cash on necessary items, such as food, utilities, rent, or mortgage payment, and keep good records.
If the IRS already has your account information, you can expect a direct deposit. You can check using the IRS “Get My Payment” tool. If it prompts you to provide your bank account number, but you’d prefer a paper check, don’t supply it.
Important Tip. Purposefully depriving creditors of payment can be fraudulent. However, you’re entitled to use your assets to provide basic life needs for you and your family. Plus, the purpose of stimulus payments is to lessen the financial impact of the coronavirus outbreakânot to pay down creditors. So while it’s unlikely that you’ll run into a problem, keeping good records will help.
Also, history has shown that when collecting gets harder, creditors become creative. So stay transparent.
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Will The Consumers Own Bank Seize The Stimulus Payment
Stimulus payments are at even greater risk of seizure by the consumers own bank or credit union . Even if the bank does not have a court judgment against the consumer, the bank generally has the right to seize money deposited in the consumers account to repay amounts owed to the bank. This is called the bankers right of setoff. See NCLCs Consumer Banking and Payments Law Chapter 10.
Even if state emergency declarations prohibit or make it difficult for a judgment creditor to garnish a consumers bank account, the bank itself may not be covered by an emergency prohibition. Moreover, the bank does not have to seek out a seizure order from a court or other government agencyit can do it by itself. The law is far from clear about whether federal or state exemptions protecting amounts in a bank account from garnishment even apply to a banks right of set off.
Federal law prohibits a bank from exercising the right of setoff to seize money in the consumers bank account to pay for overdue credit card payments owed to the same bank unless the consumer has provided a consensual security interest in the funds . See 15 U.S.C. § 1666h 12 C.F.R. § 1026.12. This federal protection only applies to credit card debt though and does not protect the consumers bank account from setoff for amounts owed to that bank for other purposes. Seizure might occur to repay a delinquent car loan or personal loan, or amounts owed on an overdrawn account, including nonsufficient fund fees.
Can Your Coronavirus Stimulus Checks Be Garnished
The third stimulus checks were passed by Congress fairly quickly by using a special process, called budget reconciliation. Probably because of this, the coronavirus stimulus checks didnt get full protection from all garnishment.
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Generally, there are three types of debt that can be paid through garnishment unpaid IRS tax debt, child support payments and private debt. The third stimulus check gets protection from outstanding tax debt and child support, but not from private debts. A private debt includes an amount outstanding to a civil judgment, ranging from civil damages to consumer debt in default.
In contrast, the second stimulus checks of $600, which went out in December, had protection from all three forms of collection. Under the CARES Act, which was passed in March last year, state and federal agencies could garnish your stimulus checks to cover past-due child support. This rule changed with the second stimulus check, and the same applied to the third stimulus checks as well.
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The Presidents Name Wont Appear On Third Stimulus Checks
Former President Trumps name appeared on earlier stimulus checks issued by the IRS. That created quite a stir among Democratic lawmakers, who accused the former president of trying to take all the credit for the stimulus payments.
President Biden will take a different path. According to White House Press Secretary Jen Psaki, the Presidents name will not appear on the memo line of this round of stimulus checks.
Can A Debt Collector Take My Stimulus Check
Child support, taxes, and other debts to the federal government are exempt from garnishment, but a private debt collector can try to take your stimulus payment. While previous rounds of aid prohibited debt collectors from garnishing stimulus payments, that protection was not included in this third round.
Congress may consider new, separate legislation to shield this round of payments from debt collectors.
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What If I Am Married To Someone Who Owes Child Support Will My Tax Return Be Applied To The Child Support Arrears They May Owe
Yes,unless you are eligible for relief. If youdo not owe child support butyouare married tosomeonewhoowes child support,you may need to file an Injured Spouse Claim and Allocation -Form 8379
In some instances, the IRS offsets a portion of the payment sent to a spouse who filed an injured spouse claim if it has been offset by the non-injured spouses past-due child support. The FAQ on the IRS stimulus FAQ www.irs.gov/coronavirus/economic-impact-payment-information-center website states: The IRS is aware that in some instances a portion of the payment sent to a spouse who filed an injured spouse claim with his or her 2019 tax return has been offset by the non-injured spouses past-due child support. The IRS is working with the Bureau of the Fiscal Service and the U.S. Department of Health and Human Services, Office of Child Support Enforcement, to resolve this issue as quickly as possible. If you filed an injured spouse claim with your return and are impacted by this issue, you do not need to take any action. The injured spouse will receive their unpaid half of the total payment when the issue is resolved.
Can The Government Take My Stimulus Check For Back Child Support
A third round of stimulus checks went out to the American people in early March. Some have already seen the funds direct deposited into their accounts. Others have not received their payments yet, and are wondering why. Those who owe debts like child support or student loans may be worried that their stimulus payment will be garnished.
Following are some frequently asked questions and answers about stimulus check number three.
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Attorney General James Issues Guidance To Protect New Yorkers Stimulus Payments From Debt Collectors
NEW YORK New York Attorney General Letitia James today took action to protect millions of New Yorkers and block debt collectors from seizing billions of dollars in emergency stimulus payments authorized by the American Rescue Plan Act of 2021. Attorney General James issued official guidance to New York state banking institutions, creditors, and debt collectors, making clear that financial relief provided through stimulus payments are exempt from garnishment under New York law. The American Rescue Plan Act authorized the U.S. Department of Treasury to send billions of dollars to Americans struggling as a result of the economic fallout of the coronavirus disease 2019 public health crisis, but these emergency stimulus payments were not designated as exempt from garnishment, allowing debt collectors to potentially benefit before consumers.
As New Yorkers continue to face economic instability spurred by the pandemic, it is imperative that we continue to protect their wallets from unscrupulous actors, said Attorney General James. This official guidance makes clear that banks and debt collectors cannot freeze or seize stimulus funds that are intended for New Yorkers, especially those most in need during this time. My office remains committed to protecting New Yorkers rights, and ensuring that any institution that violates this guidance will be held accountable to the fullest extent of the law.
Payments Are Shielded From Other Debts
The law protects the stimulus payments from garnishment for other outstanding federal debts, like student loan or tax debt.
For the $1,200 payments authorized by the CARES Act last year, the payment was protected form all debts except delinquent child support. Congress expanded the exclusion for the second round of payments, worth up to $600, making sure the money would not be offset even for owed child support.
But theres another hurdle for people who were eligible but missed out on getting the earlier payments. An estimated 8 million households that didnt get the money sent directly to them, most commonly because the IRS didnt have their correct information on file. Very low-income people are not normally required to file taxes.
Those people are allowed to claim the payment as a credit on their 2020 tax return. But the none of the three Covid relief bills shield those tax credits from back debts even federal ones. After facing pressure from the National Taxpayer Advocate, the IRS agreed to use its discretion when considering offsetting the stimulus credits but people who had filed their 2020 tax returns by that point could have already lost out on the cash and wont have any way to get it back.
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Can My Stimulus Check Be Taken For Back Child Support
The first stimulus check had provisions for garnishment for back child support. The second payment protected people from garnishment completely. With the third payment, your funds cannot be taken or garnished for back child support. However, it is important to note that they can be seized to pay private debtors.
Debt Collection And Your Stimulus Check
Unlike some government payments — such as Social Security and disability benefits — your stimulus check is not shielded from all debt collectors by federal law.
Cash you owe to federal or state authorities can be seized only to pay child support. But the CARES Act does not protect you from private debt collectors, nor will it stop a bank from putting that money toward existing fees or overdrafts.
Several big banks have promised not to use stimulus checks in this way, but debt collectors have made no such promises. If you have a court judgment against you, your stimulus check could be taken directly out of your account, which is also called garnishment. Courts can also order that your account be frozen. That’s why a number of states have put their own legislation in place to protect the hardest-hit.
To be clear, if you owe money but there are no court judgments against you, debt collectors cannot take money out of your account. Make sure you check your credit reports regularly so that you are not caught unawares.
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A Patchwork Of Protection Leaves Many Vulnerable
The rules may look different in every state, protecting the money from some offsets but maybe not others like child support debts.
Its certainly great to see states taking action, but it would have been more expeditious if there was federal legislation, said April Kuehnhoff, a staff attorney at the National Consumer Law Center.
And then theres always a question about enforcement of the state orders and whether relevant parties are complying, she added.
If a debt collector seizes your money, Kuehnhoff said having legal advice could help navigate any protections that night be in place but that could be a big hurdle for someone struggling to survive financially.
It could also be helpful to reach out to the bank, some of which have committed to leaving the stimulus money alone. New Jersey Gov. Phil Murphy said in a that said that state secured support from 49 banks and credit unions to protect the payments.
Bank and credit union groups joined consumer advocates like the National Consumer Law Center in sending a letter to Congress last month urging lawmakers to protect the payments.
While depository institutions and even many debt collectors and buyers believe that economic impact payments should be exempt from garnishment orders, depository institutions are obligated to comply with court orders, the letter read.
Can Debt Collectors Take Your Stimulus Check You May Not Be Protected
Third stimulus checks are protected from being seized for tax, child support and other government debts.
However, private creditors and debt collectors can use stimulus funds to cover fees such as civil damages or consumer debt. The Internal Revenue Service could also potentially access stimulus payments claimed through Recovery Rebate Credit .
The Consumer Financial Protection Bureau advises: “Your Economic Impact Payment will not be subject to most types of federal offset or federal garnishment as a result of defaulted student loans or tax debt.
“The payments may also still be subject to state or local government garnishment and also to court-ordered garnishments,” the CFPB adds.
Garnishment sees creditors take a portion of your wages or money from your bank account to collect debt. Most garnishments take place by court orders following a judgment in a lawsuit.
“Certain debts owed to the federal government, such as to the IRS, may result in a garnishment without a court order,” the CFPB explains.
Here we take a closer look at which types of debt could be covered using third stimulus payments.
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Banks And Creditors Might Be Able To Take Your Stimulus Checks In This Circumstance
With the first stimulus check, private banks and creditors were able to seize your payment to cover an outstanding debt. However, some states, such as California, issued orders forbidding banks and creditors from garnishing your stimulus check. With the second stimulus check, your payment was protected from bank garnishment and from private creditors and debt collectors, according to the text of the law. The third check is also supposed to be protected from bank garnishment, though not from private creditors and debt collectors.
However, there’s one major caveat here. Individual banks can decide whether they want to use your stimulus direct deposit payment to cover overdraft fees, according to a New York Times report. This is because, for most people, their stimulus check is deposited into the same bank account where they also receive tax refunds.
Although for the second check large US banks including Bank of America, Citigroup, JPMorgan Chase and Wells Fargo said they would temporarily zero out their customers’ negative balances so that they could access their stimulus money, some regional and community banks still garnished that money to pay overdraft fees, or were considering customer requests on a case-by-case basis, according to the Times. If this has happened to you, you can try contacting your bank to ask for a temporary overdraft waiver, but it may not be granted. This is likely to be the case for a third check as well, Watson said.
Incarcerated People Are Eligibly For All 3 Stimulus Checks
Though there was a lot of confusion about this at first, people who are in prison and jail are eligible to qualify for the first stimulus check of up to $1,200 per adult, as well as the second check of up to $600 and the third check of up to $1,400. A ruling this fall from a federal judge in California required the IRS to contact those incarcerated who can file a claim for a stimulus check. As with others who are missing any of the payments, youll need to fill out 2020 Form 1040 or 1040-SR to claim either the first or second check.
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My Spouse And I Only Got Half A Stimulus Payment Can We Fix It
The IRS says that some married couples filing jointly may have only received half the amount theyre eligible to receive. The IRS is working on getting the remainder out to eligible couples. Your payments may arrive via different methods, so watch the mail in case you get a check or EIP card for the missing amount.
The IRS recommends that each spouse visit the Get My Payment portal individually to check their payment status.