Debt Collectors Can Seize Stimulus Checks

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The third round of stimulus checks, which started going out over the second weekend of March as a part of the latest COVID-19 relief package, can be seized by private debt collectors. Lawmakers are rushing to solve this problem.

Stimulus check recipients with unpaid medical or credit card bills, for which the company has sought a judgment against the debtor, could lose the freshly deposited funds from their bank accounts. A spokeswoman said Senator Ron Wyden, an Oregon Democrat, planned to introduce a fix to shield the payments from garnishment.

However, for now, collectors can seize the funds, worth up to $1,400 per individual, that the federal government is depositing into people’s bank accounts. Regarding this, National Consumer Law Center associate director Lauren Saunders said, “We really wish this could have passed before the money started going out. The protection would have been far more effective if the payment was coded in a way so that banks would automatically know to protect the money.”

Lawmakers had shielded the $600 payments approved as a part of the second (December) relief package. However, the latest COVID relief bill didn’t include that protection because of the procedural rules Democrats used to push the bill through the Senate without any Republican support.

The COVID relief bill passed in March 2020, known as the CARES Act, also excluded terms safeguarding the first round of stimulus check payments, worth up to $1,200, from private debt collectors. A separate Senate bill, aiming to shield the paments, was passed by unanimous consent a few months later but wasn’t taken up by the House.

A coalition of advocacy groups, including the National Consumer Law Center and the American Bankers Association, has urged lawmakers to solve the issue. In a letter to Congressional leaders, the group said, “Otherwise, the families that most need this money- those struggling with debt and whose entire bank accounts may be frozen by garnishment orders – will not be able to access their funds.”

Currently, unless the bill proposed by Wyden passes, if a creditor has sued the debtor over the debt and the court issues an order for garnishment, a bank must hand over the money by law.

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