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Congress is poised to authorize new $1,400 stimulus checks, but this time some people with unpaid debts could have that money garnished.
The House of Representatives is due to pass the $1.9 coronavirus relief bill on Wednesday, which includes a third round of direct payments. From there, it will go to President Joe Biden for his signature.
Like the previous two rounds of checks, the $1,400 direct payments will come with eligibility rules based on income and other requirements.
This time, however, because the checks are set to be authorized by Congress through a process known as budget reconciliation, they will not be exempt from garnishment.
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Consumer and banking trade groups, including the American Bankers Association, pushed back on Monday with a letter to Congressional and Senate leaders calling for the stimulus payments to be exempt from garnishment.
“Otherwise, the families that most need this money — those struggling with debt and whose entire bank accounts may be frozen by garnishment orders — will be not be able to access their funds,” the letter states.
The groups call on Congress to pass a standalone bill to prevent depository institutions from having to pay creditors who attempt to garnish and freeze bank accounts.
In general, there are three kinds of unpaid debts that can be satisfied via garnishment: unpaid IRS tax debt, other government debt or private debt, according to Garrett Watson, senior policy analyst at the Tax Foundation.
The $1,400 payments would be protected from outstanding tax debt or debt collected by governments including child support offsets, Watson said. But stimulus payments are not protected from collection for private debts.
In contrast, the $600 stimulus checks that went out in December had more robust protection that generally protected the money from all three forms of collection.
Because there are limited ways for people to change their bank account information with the IRS, there is little people can do to prevent the funds from getting taken, except perhaps closing their accounts, Watson said. However, that would likely mean they would have to wait longer to receive their stimulus check, he said.
People who receive paper checks and are worried about garnishment can cash their checks at retail sores or check cashers instead of through their banks but may incur higher fees by doing so, according to Aaron Klein, senior fellow in economic studies at the Brookings Institution.
“It’s a strong incentive,” he said.
Those fees can range from $8 at Walmart to up to $195 for a married couple with three children who use a check casher, a report recently published by Brookings found.
