by Emma Newbery | May 4, 2020
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Debt collectors can take your stimulus check. But not everywhere.
COVID-19 has hit the nation's wallets as well as its health. There are record numbers of unemployment claims, and businesses remain shuttered as people stay at home to slow the spread of the virus.
Many were struggling with debt even before the novel coronavirus outbreak -- according to the Urban Institute, in 2018 almost a third of Americans had debt in collections. That figure will only increase as the country deals with the fallout from this unprecedented crisis.
This is why a lot of people are worried that their stimulus checks will be swallowed up by debt collectors. For those struggling to pay for essentials such as food and housing, losing that one-off payment of $1,200 will mean losing a much-needed lifeline.
Unlike some government payments -- such as Social Security and disability benefits -- your stimulus check is not shielded from all debt collectors by federal law.
Cash you owe to federal or state authorities can be seized only to pay child support. But the CARES Act does not protect you from private debt collectors, nor will it stop a bank from putting that money toward existing fees or overdrafts.
Several big banks have promised not to use stimulus checks in this way, but debt collectors have made no such promises. If you have a court judgment against you, your stimulus check could be taken directly out of your account, which is also called garnishment. Courts can also order that your account be frozen. That's why a number of states have put their own legislation in place to protect the hardest-hit.
To be clear, if you owe money but there are no court judgments against you, debt collectors cannot take money out of your account. Make sure you check your credit reports regularly so that you are not caught unawares.
Individual states have put a temporary halt on debt collection in a few ways. Some state authorities have limited the seizure or garnishment of stimulus checks. Some have banned garnishment altogether. And in others, the court systems have been suspended, so no new court orders or writs can be issued. However, bear in mind that if there is an existing court order against you, this could still be enforced in these states.
According to the National Consumer Law Center, the following states have implemented new rules on debt collection during COVID-19.
In other states, including Georgia, Missouri, and Pennsylvania, individual county courts have suspended garnishment hearings or stopped issuing writs.
Almost every state that has restricted debt collection activities has made exceptions for child support, victim restitution, and similar payments. And each state is reviewing its suspensions periodically to extend as needed.
If you are scared you'll lose your stimulus check to a debt collector, whatever you do, don't just ignore the problem. First, find out what the current rules are in your state. Even if they aren't listed above, states are issuing new guidelines by the day and you may still be protected.
If you owe the bank money, reach out to it by phone or email. A number of financial institutions have hardship programs in place, but only for customers who ask for help. Explain how COVID-19 has impacted your finances, and find out what your options are.
If you already have a court judgement against you, one immediate step you can take is to request that your stimulus check be mailed to you, rather than deposited in your bank account. And if you don't have a judgement against you but are struggling to keep up with your payments, talk to your lender as soon as possible.
Even though some states have put temporary protections in place, you will still owe that money when the emergency has passed. If you've been contacted by a debt collector, start by reading up on your rights. Then ask for written confirmation of the debt -- if you don't think you owe the money, you can dispute it. If the debt is older than the statute of limitations for your state, you don't have to pay it.
You may be able to work out a way to settle the debt, but the sooner you take action, the better. Dealing with debt collectors is not easy, but whether or not your state has stepped in to protect your stimulus check, you can't avoid the problem forever.
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