Can Debt Collectors Take Your New Stimulus Check?

Posted on March 23, 2021 in Debt

The short answer: Yes, private debt collectors can garnish for debts such as private student loans, credit card debt, and medical debt, but lawmakers are trying to fix that.

The third stimulus payments of $1,400, in response to the COVID-19 global pandemics, are now making their way into the bank accounts of millions of Americans. The relief is well deserved as American families continue to deal with the aftermath of the pandemic and the subsequent recession. But, debt collectors are seizing these payments— an issue lawmakers are rushing to fix.

Types of Debt That Can be Garnished:

  • Private student loan debt
  • Credit card debt
  • Medical Debt

Stimulus payment recipients who have judgments against them from unpaid credit card or medical bill debt could see their stimulus funds plucked from their bank accounts—potentially preventing people in need from accessing the emergency funds.

Democratic Senator Ron Wyden plans to introduce legislation that would shield the payments from being garnished. But, until then, collectors can seize the money.

Why the Change?

The $600 stimulus payments that were approved in December were shielded from garnishment. But, the latest COVID relief bill did not include that protection due to procedural rules that Democrats used to push the bill through the Senate.

An alliance of advocacy groups is urging lawmakers to make the fix. Because until there’s a change, the law states that “if the creditor has sued over the debt and there’s a court order in place for garnishment, a bank must turn over the money.” 

Debts and Student Loans In Good Standing

A general rule of thumb is that as long as you remain in good standing on your loan and/or debt, the lender cannot seize your funds or property. This includes non-defaulted debts that are being paid on time or if there is an agreed-upon temporary suspension of payments— like what we are currently seeing with federal student loan deferment.

Payments are Shielded from Other Debts

The good news for people with outstanding federal debts, including student loans and tax debt, is that these federal debts are protected from stimulus garnishment.

Last year’s CARES Act, $1,200 payments were protected from all debts except delinquent child support. Congress then expanded that exclusion for the second $600 round of payments, ensuring the money would not be offset even for back child support.

What To Do If A Debt Collector Takes Your Stimulus Money

Unfortunately, until the law changes, debt collectors have full access to your stimulus funds if you have a judgment against you for medical and credit card debt. So, what can you do if a debt collector takes your stimulus money?

First of all, you should contact a licensed attorney. A consumer protection attorney will be able to advise you of your rights and options. If the debt collector did break any laws, an attorney would help you get your money back and may even recover damages that you are entitled to. Federal and many state debt collection laws prohibit unfair and deceptive debt collection practices. So, if the debt collector falsely claimed that they could in fact take your stimulus money, when that may not be legal, it could give you a cause of action to also pursue the debt collector for damages.

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