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Can Debt Collectors Take Your COVID-19 Stimulus Check?

Following a congressional budget reconciliation, on March 11, 2021, President Biden signed into law the $1.9 trillion COVID-19 rescue package known as American Rescue Plan, bringing the total federal COVID-19 spending legislation to $6 trillion. Among other features, that law provides up to $1,400 in stimulus payments for individuals earning less than $80,000 ($2,800 for married couples earning less than $160,000). Text of the American Rescue Plan can be found here.


For many Americans eligible for stimulus checks and straddled with debt, a common question is whether creditors can intercept these payments via garnishment or other collection tools.


This is a valid concern for debtors with money judgments against them, as the American Rescue Plan does not contain protections shielding these payments from private creditors (e.g., credit card debt, medical bills, private student loans). This blog will explore various creditors’ rights to your stimulus checks.


Can Student Loan Creditors Take Your Stimulus Check?


There are federal protections as it relates to federal student loan debt. President Trump issued a moratorium on collection activities on behalf of the US Department of Education (federal student loans). This moratorium was recently extended by President Biden to September 31, 2021. Therefore, (presumably) your stimulus check won’t be intercepted to be applied for payment towards your federal student loan. I say presumably because checks started to go out March 12, 2021 via direct deposit and should realistically get spent before the moratorium expires.


Again, this protection only applies to federally-backed student loans. Private student loan creditors can use their collection remedies (less powerful than those remedies afforded federal student loan creditors). At a minimum, seizing payments would require a money judgment against you which only occurs after a lawsuit is filed. Some states may have their own protections on collection of consumer and other debts during the COVID 19 pandemic. Check the law of your state.


Federal student loans include: (1) Direct subsidized loans and direct unsubsidized loans (undergraduate students; subsidized means the US DOE pays interest during matriculation and 6 months after school), (2) Direct PLUS loans (for graduate and professional students); and (3) Direct PLUS loans for parents.


Private student loans are made by private lenders such as banks and credit unions. In contrast, federal student loans are made by the federal government on certain terms not typically offered by private lenders.


In Washington state, Governor Inslee issued proclamation 20-49.14 on March 16, 2021 that “precludes garnishment of all federal COVID-19 relief deposited into accounts…”. Therefore, even though the ARP did not include specific protections against seizure of stimulus checks by private creditors, in Washington state (and potentially other states), private creditors cannot seize these payments via garnishment of bank accounts. But note, Inslee did lift a prior prohibition on garnishments of consumer debts via proclamation 20-49.14.


Will the IRS seize your COVID-19 Stimulus Check?


No, according to a recent blog post dated March 15, 2021 on the national taxpayer advocate website that reads in part:


“In December, however, Congress changed the law, allowing the IRS to reduce the [recovery rebate credit] claimed on a taxpayer’s 2020 federal tax return to satisfy outstanding federal liabilities and requiring the IRS to reduce the [recovery rebate credit] to satisfy child support and other federal and state obligations. This last-minute change harmed individuals who, maybe through no fault of their own, hadn’t received their advance [stimulus check] in the full amounts to which they were entitled. …


“I am very pleased that the IRS has agreed to exercise its discretion under IRC § 6402(a) to refrain from offsetting RRCs to satisfy federal tax debts. It has committed to doing so as quickly as practical.”


Full blog post link here.


Can Credit Card Companies and Other Private Creditors Seize Your Stimulus Check (Medical Bills, Auto Loans, etc.)?


If you live in Washington state, the answer is no. For states that do not have such state-level protection, the answer may be yes. However, for that to happen, such private creditor must first obtain a money judgment against you. This can only happen after it files a lawsuit and properly serves you with a copy of the lawsuit and summons issued by the clerk upon filing of the lawsuit.


If this occurs, you must answer the lawsuit in court to prevent a judgment from being entered against you. This should at least buy you time to obtain your stimulus money without garnishment. If you file an answer that denies the creditor is entitled to judgment against you, the creditor must obtain a judgment after a trial or via motion for summary judgment (likely take multiple months to get resolved by the court).


If, however, the private creditor already obtained a money judgment against you, the creditor must apply for and obtain a writ of garnishment to have your bank account garnished. Garnishment of a bank account is realistically the only way a creditor can intercept your stimulus check. Most, if not all states, require that the creditor give you notice of the issuance of the writ once it’s served on the bank, and allow you time to claim certain exemptions in the funds sought to be garnished. You need to contact an attorney to assist with defending against garnishment actions, which may be in the form of claiming an applicable exemption in the funds sought to be garnished.


For example, Washington state has a “wildcard” exemption of $3,000 that allows a debtor to claim up to $3,000 as exempt from creditor collections ($1,500 of this exemption may be applied towards cash).


Further, you may want to consider contacting the IRS to see if the IRS will issue you a paper check or EIP debit card (economic impact payme

nt, which is the formal term for stimulus check). The IRS will send the payment via direct deposit to your bank account by using your bank account information on your most recent tax return. Here is link to all relevant information from the IRS on this topic.


Contact a competent attorney to advise you of your rights if you are facing a money judgment to ensure your assets are properly protected.




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