Over the past couple of weeks, the Internal Revenue Service and U.S. Treasury have worked tirelessly to send out a hundred twenty-seven million coronavirus relief checks under the $1.9 trillion American Rescue Plan to financially struggling Americans.
However, there already have been reports of honest taxpaying Americans who never got their hands on the much-needed cash.
The reason? Unpaid debts that are overdue.
According to the details of the American Rescue Plan, stimulus check money cannot be garnished for unpaid federal debts or back taxes, but the $1,400 checks can indeed be garnished for unpaid private debts—such as medical bills or credit card debts—if they are subject to a court order.
Garnishment is a court order that allows for money to be removed from an individual’s bank account, and banks generally have to comply with a court’s demands.
In light of this, at least six states—Maryland, New Jersey, Washington, Massachusetts, Nebraska, and New York—are taking action to shield the most recent round of stimulus checks from private debt collectors after Congress failed to exempt the money from garnishment.
Washington did, however, green-light garnishment protection measures for the $600 stimulus payments that were approved in December.
Before the American Rescue Plan was signed by President Joe Biden, several Washington lawmakers took the initiative to look into whether stimulus checks can in fact be garnished.
“We know predatory debt collectors are already lining up to try to take a cut of those checks,” Sen. Sherrod Brown said on the Senate floor last month.
Brown called for the passage of a bill tackling that particular issue that he proposed alongside fellow Democrats, but it was eventually blocked by Sen. Pat Toomey, who argued that it was too late to change the bill and that it could help protect husbands or fathers who refuse to pay alimony or child support.
The American Bankers Association sent a letter to Congress, urging lawmakers to “quickly pass standalone legislation addressing garnishment to ensure that American families will receive these benefits as intended.”
It continued: “While depository institutions and even many debt collectors and buyers believe that economic impact payments should be exempt from garnishment orders, depository institutions are obligated to comply with court orders.”
The Consumer Financial Protection Bureau (CFPB) also expressed its concerns regarding garnishing stimulus checks.
“If payments are seized, many financial institutions have pledged to promptly restore the funds to the people who should receive them,” CFPB Acting Director Dave Uejio said in a statement.
“We appreciate these efforts, which recognize the extraordinary nature of this crisis and the extraordinary financial challenges facing so many families across the country,” he added.
Ethen Kim Lieser is a Minneapolis-based Science and Tech Editor who has held posts at Google, The Korea Herald, Lincoln Journal Star, AsianWeek, and Arirang TV. Follow or contact him on LinkedIn.