The third stimulus checks – $ 1400 for each eligible adult and dependent – still land in bills, providing millions of people with welcome relief. But the relief may be short-lived for some, as the $ 1,400 checks could be decorated by private debt collectors.
Unlike the second stimulus payment, which is protected against the decoration of private debt collectors after the first round of checks did not have protection, the third round of stimulus checks also does not contain a ban on garnishment. This is due to the hallmark of U.S. bailout law through budget reconciliation, which has restricted legislative options, according to a letter from the American Bankers Association and other banking groups in March asking Congress to take steps to make payments protect.
Although Congress did not act, some states pushed back, with governors and attorneys general banning the practice of decorating in recent weeks. Among them are New Jersey, whose governor signed an executive order March 24 protecting the latest stimulus funds from debt collectors, and New York, where the attorney general blocked debt collectors from taking $ 1,400 in debtors’ payments. Other states that have instituted protection include Maryland, Massachusetts, Nebraska and Washington.
But people in states outside the handful may not have the same protection as a debtor seeking repayment through their stimulus checks. In those states, debt collectors can claim the $ 1400 check of the portion of the debt they owe if they sue and get a court order enabling them to collect the money. This could be a source of concern for people who have a pay-check-pay-check or have suffered a loss of income, which 4 out of ten people still experience, according to data from financial services firm TransUnion.
“Allow [stimulus checks] to be decorated, some families, especially those in color communities, who face unprecedented circumstances, can incur significant burdens, “reads the letter from the American Bankers Association.
Despite the banking institutions’ conviction that the payments of garnishment should be exempted, banks must comply with court orders to dock the funds, the letter reads.
Consumers should check the protection by their state to make sure there are no restrictions that might surprise them. In New Jersey, for example, the governor’s executive order protects $ 1,400 payments for 30 days. With many of the first checks ending up in accounts on March 17, it will extend the protection of payments to April 17.
So far, the IRS has issued 156 million payments in the third round of direct incentive assistance, with 25 million people receiving the $ 1,400 checks this week.
Protection against some
Recipients of the third stimulus payments nevertheless have great protection. First, the IRS cannot take the money to pay back repayments or if you owe other federal debt, the agency said late last month. The $ 1,400 checks will also not be decorated to pay for arrears of child support, the agency added.
At the same time, some people are asking the IRS to do this. adjust their payments from the first two checks through a rule on their tax returns called the Recovery Discount Credit. It helps people get the money they are entitled to from the first two checks – which amount to $ 1,200 and $ 600 per eligible adult respectively – if their initial payments fall short.
But the credits for repayment rebate can be reduced by federal and government debt, the IRS said. If someone owes money to the federal government or government agencies, that debt is deducted from any extra stimulus payments the people would otherwise receive. However, there is one exception: the IRS said it would not raise money for federal income taxes on March 18.