Stimulus Check: Your Money May Be Garnished, But Some States Are Backing Down

Stimulus Check: Your Money May Be Garnished, But Some States Are Backing Down

But people in states outside of that handful may not have the same protection if a debtor seeks repayment through their stimulus checks. In those states, debt collectors can claim the $1,400 checks, of the portion of the debt they are owed, if they sue and get a court order that allows them to collect the money. That could prove to be a worry for people who are living paycheck to paycheck or have suffered a loss of income, which 4 out of 10 people continue to experience, according to data from financial services firm TransUnion.  While Congress hasn’t acted, some states are pushing back, with governors and attorneys general outlawing the garnishment practice in recent weeks. Among them are New Jersey, whose governor signed an executive order on March 24 protecting the latest stimulus funds from debt collectors, and New York, where the attorney general blocked debt collectors from taking the $1,400 payments from debtors. Other states that have enacted protections include Maryland, Massachusetts, Nebraska and Washington. 

“Allowing [stimulus checks] to be garnished could impose significant burdens on some families, especially those in communities of color, facing unprecedented circumstances,” the American Bankers Association letter said.  Consumers should check the protections provided by their state to make sure there aren’t limitations that could surprise them. In New Jersey, for instance, the governor’s executive order protects the $1,400 payments for 30 days. With many of the first checks landing in accounts on March 17, that would extend protection on those payments through April 17.

04:37 So far, the IRS has issued 156 million payments in the third round of direct stimulus aid, with 25 million people this week in line to receive the $1,400 checks. 

Many Americans put stimulus money into stocks… Despite banking institutions’ belief that the payments should be exempt from garnishment, banks would have to comply with court orders to dock the funds, the letter added.

Recipients of the third stimulus payments have some major protections, nevertheless. For one, the IRS can’t take the money to pay for back taxes or if you owe other federal debts, the agency said late last month. The $1,400 checks also won’t be garnished to pay for overdue child support, the agency added.  Protection from some

Source But the Recovery Rebate Credits can be reduced by federal and state debts, the IRS said. If someone owes money to the federal government or state agencies, those debts will be subtracted from any extra stimulus payments those people otherwise would have received. There is one one exception, however: The IRS said it won’t take out money for past due federal income taxes effective as of March 18.  At the same time, some people are asking the IRS to adjust their payments from the first two checks through a line on their tax returns called the Recovery Rebate Credit. This helps people get money they are entitled to from the first two checks — which amounted to $1,200 and $600 per eligible adult, respectively — if their initial payments fell short.

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