Between 2020 and 2021, the United States federal government approved three stimulus payments. The first in March of 2020 was under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which sent $1,200 to each eligible adult, and $500 for children ages 16 and under. The Consolidated Appropriations Act (CAA) of 2021 was signed in December of 2020, with $600 payments going to eligible adult taxpayers and children ages 16 and under. The third was the American Rescue Plan Act (ARPA) of 2021. This March of 2021 stimulus was $1,400 per eligible adult, with most dependents under 24 receiving the same amount.
Those dealing with debt may be concerned about their stimulus funds being seized. The CARES Act payment can only be taken for private debts. The CAA payment has protections that allow it to be used only for bank debts. ARPA payments are only safe from collection for federal debts.
So, will your stimulus check remain in your possession, or do you fall under one of the conditions in which a debt collector can take your money? Let's take a closer look at the specifics around having your stimulus removed from your account and see what outcome you can expect to experience.
Debt Collectors & Your Stimulus
Whether or not a debt collector can take your stimulus check does depend on a few things. The biggest one is which stimulus check it is. In most situations, you shouldn't have to worry about your stimulus money being seized. You have legal protections for the ARPA and CARES stimulus checks stating that they can only be taken for private debts, but not all private debts. The CAA payment is only able to be taken by your bank to cover any debts you may owe them.
Luckily, in order for a debt collector to be able to take any funds from your account, they will need to go to court and see a judge first. No funds are able to be withdrawn without express approval from a judge. Furthermore, if you are in good standing (as in, you've been working on clearing the debt), they are not able to touch your stimulus money. There are even states in which nobody is legally allowed to remove your money, no matter what type of debt you may be in.
Who Can Seize Your Stimulus Check?
The seizure of a stimulus check is not something that can be done for most types of debt. None of the stimulus payments can be taken for federal debts, such as tax debts. Unfortunately, the last two stimulus bills that passed don't have any protections against private debt collectors trying to seize your funds.
The good news is, however, that not all private debts are eligible to have funds removed from your account. If you are in good standing on your debt and have been making payments on it, you shouldn't have to worry. If you are behind on payments and a debt collector really wants to, they can take the case to court and ask a judge to sign off on a withdrawal of funds from your account so they can get their money.
If you are receiving Social Security benefits and the IRS deposits them into an account that is specifically dedicated to their benefits, you may be in luck. In most cases, Social Security bank accounts generally have protections against collection efforts. This is great for those that are on a fixed income and can't afford to lose anything they're expecting.
For many people that are dealing with debt in the pandemic, they chose to withdraw their stimulus check before it could be removed from their account. This is a good idea because it allows those that are in debt to have access to their money and cover their bills and other expenses. It is smart to make a list of anything that was purchased or paid off if a judge grants a debt collector's request to seize the full amount of the check.
Some states have passed their laws to protect the citizens further than the protections put in place by the federal government. In many places, debt collectors are not legally allowed to go after your stimulus check. Depending on where you live, you may be one of the lucky individuals that don't have to worry about their money disappearing due to debt. States that have passed their own laws include:
- New Jersey
- New York
- Rhode Island
If you live in any of these locations, it's best to check into the specifics regarding the seizures of stimulus checks because each state has its own rules and guidelines that must be followed. For those that live in states without any added protection, your bank will be legally required to turn the money over if a judge signs off.
Was The First Stimulus Check Protected From Creditors?
The Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed in March of 2020 by the Trump administration and is protected against seizures for federal debts. Unfortunately, however, they are still eligible to be taken to settle personal private debts you may have accumulated over time. Once the funds have been deposited in your bank account, debt collectors may be able to access these funds through either a garnishment or levy before you have a chance to withdraw.
There are types of debts that are not able to be collected without the debt collector going to court. Some of the most common reasons for garnishment or a levy are student loans, tax liens, and debt to financial institutions. Other types of debts can't be forcibly collected unless the creditor chooses to sue and the judge decides in their favor. These debts include rent, credit card debt, and medical debt.
If a debt collector wants to sue to collect your stimulus check to cover your debt, they do need to get this taken care of within a certain amount of time, which varies from state to state. If the collector has failed to file the suit within the time specified by the statute of limitations, you can request that the case be dismissed due to this violation. If a levy has been put in place and the creditor has already seized your funds, you may have the opportunity to object to this. It's important to object as quickly as possible, as most states require the objection to happen in 10 days or less following the approval.
Similar post: Medical Debt Forgiveness Act – What It Is & What It Does
Can Debt Collectors Take Your Tax Refund?
If you're concerned about creditors garnishing your tax refund, you are not alone. Many people wonder if their refund can be taken due to unpaid debts, but you may be in luck. According to federal law, only federal and state government agencies can take your refund from you. This only applies to the refund before it is deposited in your bank account or the check being sent out, though.
The United States Department of Treasury's Financial Management Service allows various government agencies to collect the debts owed to them via offsetting your debt from your refund. The good news is, this is not something that private companies or debt collectors can do. There are only a few types of government debts that can be garnished, including:
- Any unemployment compensation that has to be repaid
- Outstanding debts with federal agencies, not including the IRS
- Past-due state income taxes
- Past-due court-ordered child support payments
The IRS always gets top priority, as your taxes must be paid before any other debts. Once the IRS has been taken care of, child support payments are taken next. These garnishments can continue until the entire debt has been cleared and your obligations have been completed. You can even have your refund garnished for unpaid spousal support as well.
Once the IRS and child support orders have been fulfilled, other federal agencies you may owe are next in line for their cut. This includes the Department of Education. Student loans payments are unavoidable, and the government will take what is owed to them when your taxes are filed. The lowest priority when it comes to tax refund garnishments is state debts, including paying back unemployment compensation and income tax debts.
If you're wondering if one of your debts has been submitted to be offset from your tax refund, you can contact the IRS Bureau of Fiscal Service directly. The IRS will notify you via mail if your refund is going to be offset. The notice that you receive will include any information needed to contact the agency that is requesting the offset, as well as how much you were going to get back and how much you will be getting based on the offset. Any money that remains after the proper parties are repaid for their debts will be sent to you either via paper check or direct deposit.
Has Your Stimulus Check Been Taken By Debt Collectors?
Depending on what type of outstanding debts you have and whether or not the collectors have obtained a court order, you may still get a stimulus payment. The best course of action is to create an account on the IRS website, log in, and check the status of your payments. If they were used for a pre-existing debt, you will be able to see how much was taken and from which stimulus checks.
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Shawn Manaher is a former financial advisor, has founded 5 online businesses, and is a coach, speaker, podcast host, and author. He's been featured on Forbes, The Consults Corner on TAE Radio, The Writing Biz, What's Your Story, and more.