Finance $1,400 stimulus checks could be garnished for unpaid debts. Some are calling for that to change
- New $1,400 stimulus checks are poised to get final approval from Washington leaders.
- Because those payments are included in a process called finances reconciliation, they are not protected from garnishment for unpaid debts.
- Some banking and consumer groups are calling for that to change.
Congress is poised to authorize new $1,400 stimulus checks, but some people with unpaid debts could have that money garnished this time.
The House is due to pass the $1.9 coronavirus reduction bill on Wednesday, which includes a third round of direct funds. 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.
However, because these new checks are set to be authorized through a process known as budget reconciliation, they will not be exempt from garnishment.
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Consumer and banking trade teams, including the American Bankers Association, sent a letter to Congressional and Senate leaders on Monday calling for the stimulus payments to be exempt from garnishment.
“Otherwise, the families that most want 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 stated.The teams name 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 Tax Foundation Senior Policy Analyst Garrett Watson.
The $1,400 payments would be protected from outstanding tax debt or debt collected by governments including child-support offsets, Watson said. However, 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.