Third stimulus checks ($ 1,400 per adult and eligible dependents) continue to land instead, providing welcome relief to millions of people. But that relief may be short-lived for some, as $ 1,400 checks can be cashed on by private debt collectors.
Unlike the second stimulus payment, which was protected against the confiscation of private debt collectors after the first round of checks had no protections, the third round of stimulus checks also did not include confiscation prohibitions. This is due to the peculiarity of the passage of the American Rescue Act through budget reconciliation, which limited legislative options, according to a March letter from the American Bankers Association and other banking groups calling on Congress to take steps to protect payments.
Although Congress has failed to act, some states are backtracking, with governors and attorneys general outlawing the embargo practice in recent weeks. Among them are New Jersey, whose governor signed an executive order on March 24 to protect the last stimulus funds from debt collectors, and New York, where the attorney general prevented collectors from collecting debt. payments of $ 1,400 from debtors. Other states that have enacted protections are Maryland, Massachusetts, Nebraska and Washington.
But people in states outside of that handful may not have the same protection if a debtor seeks repayment through their stimulus checks. In these states, debt collectors can claim the $ 1,400 of the part of the debt they have, if they sue and get a court order that allows them to collect the money. According to data from financial services firm TransUnion, this could be a concern for people living on payroll or having suffered a loss of income, who continue to experience 4 out of 10 people.
“Allowing [stimulus checks] being garrisoned could impose significant burdens on some families, especially those in communities of color, in the face of unprecedented circumstances, ”the letter from the American Bankers Association said.
Despite the banking institutions ’belief that payments should be exempt from confiscation, banks should comply with court orders to raise funds, the letter adds.
Consumers should check the protections provided by their state to make sure there are no limitations that might surprise them. In New Jersey, for example, the governor’s executive order protects payments of $ 1,400 for 30 days. With many of the first checks landing instead on March 17, this would extend the protection of these payments until April 17.
To date, the IRS has issued 156 million payments in the third round of direct stimulus assistance, with 25 million people lined up this week to receive the $ 1,400.
Protection against some
However, the recipients of the third stimulus have some important protections. On the one hand, the IRS cannot take the money to pay back taxes or if it has other federal debts, the agency said late last month. The $ 1,400 checks will also not be garnished to pay the overdue alimony, the agency added.
At the same time, some people are asking the IRS to do it adjust your payments from the first two checks via a line to the tax returns called Recovery Bonus Credit. This helps people get the money they are entitled to with the first two checks (which amounted to $ 1,200 and $ 600 per eligible adult, respectively) if their down payments were insufficient.
But recovery bonus credits can be reduced with federal and state debt, the IRS said. If someone owes money to the federal government or state agencies, those debts will be deducted from additional incentive payments that people would have otherwise received. However, there is one exception: the IRS said it will not withdraw money from federal income taxes in effect as of March 18.