Personal Finance

Will your stimulus check get seized? It could come down to where you live

Key Points
  • If you're counting on a stimulus check but have outstanding debt, you could be in for some bad news.
  • Your payment could be taken away by creditors if you are behind on debts, based on recent legislation passed by Congress.
  • Some states have laws to prevent that from happening. Others are urging the federal government to also disallow it.
Deborah Harrison | Photographer's Choice RF | Getty Images

If you're behind on your debts, your coronavirus stimulus check could be taken from you.

Some states are fighting back to prevent that from happening.

To that point, New York is blocking banks and debt collectors from seizing stimulus payments delivered to residents authorized by the CARES Act.

Payments started going out to Americans last week, either through the mail or electronic direct deposit.

On Saturday, New York's attorney general said banks and debt collectors cannot freeze or seize stimulus funds. The stimulus payments approved by Congress and President Trump "were not designated as exempt from garnishment, allowing debt collectors to potentially benefit from consumers," New York attorney general Letitia James warns.

James argues state law exempts public benefits from legal processes "by a judgment creditor seeking to satisfy a monetary judgment."

Additionally, this week, Ohio Attorney General David Yost warned creditors that those one-time government checks are protected by state law from garnishment.

Oregon Gov. Kate Brown signed an executive order Friday barring debt collectors and creditors from seizing stimulus checks sent to Oregonians under the latest coronavirus relief package.

"Many Oregonians, through no fault of their own, are struggling to pay their bills, their rent, or even buy essentials like groceries and prescription drugs," Brown said in a prepared statement. "These recovery checks were meant to provide relief, not reward debt collection agencies for preying on Oregonians who have lost their livelihoods due to the COVID-19 pandemic."

These announcements were prompted by the CARES Act, the $2 trillion coronavirus stimulus legislation passed by Congress, because it does not prevent private debt collectors from seizing the money for unpaid debts. The CARES Act does protect federal and state debts from garnishment.

"The stimulus checks were intended to be used during an emergency – to put food on the table, keep the lights on and a roof over our heads," Ohio Attorney General's Yost said in a statement. "It wasn't meant to pay off an old bill."

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Many state attorneys general agree. That prompted 25 of them, including Yost, along with the Hawaii Office of Consumer Protection, to send a letter to Treasury Secretary Steve Mnuchin on Monday urging him to reverse the policy.

"During this public health and economic crisis, the States do not believe that the billions of dollars appropriated by Congress to help keep hard-working Americans afloat should be subject to garnishment," the officials wrote.

Massachusetts Attorney General Maura Healey also warned creditors that stimulus payments are "off limits" in that state. Nebraska Attorney General Doug Peterson warned creditors to "proceed with caution."

Multiple senators, including Sen. Sherrod Brown, D-Ohio, have also called for changing the rule.

Some states have not responded to the law, said Lauren Saunders, associate director at the National Consumer Law Center.

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"Given that we're not going to get any federal clarity any time soon, we are still very much urging states to exercise whatever authority they can," Saunders said.

Many payments have already gone out that could be subject to garnishment. But Congress could change that going forward through consensus legislation, Saunders said.

Meanwhile, some stimulus payments are going to bank accounts that may be dormant and/or have negative balances. Some banks are grabbing the stimulus payments, Saunders said. Others, such as Chase and Wells Fargo, have said they will not touch the money.

The conflict highlights a general lack of access to justice that many people face, Saunders said.

"This is especially egregious right now," Saunders said. "But it happens on a regular basis that money that people need for food is taken from them."

Without access to the courts, without access to attorneys, without sufficient funding for legal services, people just can't exercise their rights.
Lauren Saunders
associate director of the National Consumer Law Center

If you find yourself in a tight spot, there are several actions you can take.

If your bank takes your money, call and ask them to reverse it. "Some banks may be willing to help and they just don't have the automatic systems in place," Saunders said.

If you have been served with a garnishment order, take steps to respond to it.

Try to find an attorney, Saunders recommended. If you are low income or a senior, a local legal services office may be able to help you.

The National Association of Consumer Advocates' website has an attorney search function.

If you can't find an attorney, contact the court, Saunders said. You may be able to fill out a form to contest the garnishment order.

Finally, reach out to your state and federal lawmakers to ask them to help change the situation.

"Without access to the courts, without access to attorneys, without sufficient funding for legal services, people just can't exercise their rights," Saunders said.

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