Why $ 1,400 Stimulus Checks Could Be Garnished with Unpaid Debt
Congress stands ready to approve new $ 1,400 stimulus checks, but some people with unpaid debts might have that money garnished this time around.
The House will pass the $ 1.9 coronavirus relief bill on Wednesday, which includes a third round of direct payments. From there it goes to President Joe Biden for signature.
As with the previous two rounds of checks, the $ 1,400 direct payments have eligibility rules based on income and other requirements.
However, because these new checks are intended to be approved using a process known as budget reconciliation, they are not exempt from attachment.
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Consumer and banking trade groups, including the American Bankers Association, sent a letter to Congress and Senate leaders Monday demanding that stimulus payments be exempt from garnishment.
“Otherwise, the families most in need of this money – those struggling with debt and whose entire bank accounts may be frozen by garnishment orders – will not be able to access their funds,” the letter said.
The groups are calling on Congress to pass a stand-alone law to prevent custodians from paying creditors trying to garnish and freeze bank accounts.
In general, there are three types of unpaid debt that can be settled by garnishment: unpaid IRS tax debt, other government debt, or personal debt, according to Garrett Watson, senior policy analyst for the Tax Foundation.
The $ 1,400 payments would protect against outstanding tax or government debt, including child support payments, Watson said. However, stimulus payments are not protected from the collection of private debt.
In contrast, the $ 600 worth of stimulus checks conducted in December had stronger protections that generally shielded money from all three forms of collection.
With limited options for people to change their bank account information with the IRS, few people can prevent money from being confiscated other than perhaps closing their accounts, Watson said. However, that would likely mean they would have to wait longer to get their stimulus check, he said.
Individuals who receive paper checks and are concerned about the attachment can cash their checks in retail stores or check cashers rather than through their banks. However, higher fees may apply, according to Aaron Klein, Senior Fellow in Business Studies at the Brookings Institution.
“It’s a strong incentive,” he said.
These fees can range from $ 8 at Walmart to $ 195 for a couple with three children who use a check cashier, according to a recent report by Brookings.