A Debt Collector Might Take Your Stimulus Check – Here’s What To Do

One of the hallmarks of President Biden’s $ 1.9 trillion stimulus legislation, he signed the law last week is $ 1,400 in direct stimulus checks. But for millions of Americans, those stimulus payments could be threatened by debt collectors.

Congress had protected last year’s stimulus payments from debt collection agencies with legislation. But because President Biden’s “US bailout” was passed through the budget reconciliation process, lawmakers were unable to include those same protections for this round of stimulus checks. As a result, some Americans will be able to protect their stimulus payments from the interception of debt collection, but others will not.

If you’re worried that your $ 1,400 stimulus payment will be taken by a debt collector, here’s what you need to know.

Debt and student loans in good standing

Typically, if you are in good standing with your loan or debt, the lender or creditor cannot seize your money or property. This includes debts not past due when payments are made on time, or if there is an agreed temporary suspension of payments, for example through postponement or formal forbearance.

Federal student loans in default

When the federal student loans are in default, the government has powerful collection tools. In particular, the federal government can intercept or offset federal payments – such as federal tax refunds and Social Security benefits – and apply them to your delinquent student loans.

However, the CARES Act – which Congress and President Trump enacted last year – temporarily suspended all collection activity for delinquent federal student loans held by the government. President Biden subsequently extended this moratorium until September 30, 2021. Accordingly, debt collectors acting on behalf of the US Department of Education should not clear or intercept stimulus payments to honor federal student loans. overdue in government custody.

Private student loans, credit cards and other debt

With a few rare exceptions, private lenders, creditors and debt collectors – including debt holders private student loans, credit cards, and medical debt – cannot take someone’s money or property by force without first suing them and getting a judgment against them. A court order can then give the lender or debt collector more powers to pursue the income or property of a debtor. But what they can do with a judgment can vary widely from state to state.

Even with a court ruling, a private lender or debt collector is unlikely to have the authority to directly intercept government payments, such as a stimulus check. But most states give lenders and debt collectors the power to put a lien or foreclosure on a bank account to satisfy an unpaid judgment. And funds deposited into a lien or foreclosed bank account – including money from a stimulus check – could be withdrawn by the debt collector in these circumstances.

Some states have enacted specific prohibitions against seizing government stimulus checks and other government benefits to satisfy an unpaid judgment. So whether this is legal, it will depend on where you live, where the judgment was rendered, and whether your applicable state law has any relevant prohibitions or protections.

What to do if a debt collector takes your stimulus money

If your stimulus payment is taken by a debt collector, you may want to consider speaking with a licensed attorney in your state. A consumer protection lawyer may be able to advise you on your rights and legal options. If the debt collector broke a law, a lawyer can help you get your money back and you may be entitled to damages.

It is important to note that federal (and often state) debt collection laws also prohibit unfair and deceptive collection practices. For example, if a debt collector falsely claims they can take your stimulus check, when that may not be possible or legal, this could give you cause for action to sue that debt collector by damages and interests.

You can find a local consumer protection attorney in your state through the National Association of Consumer Advocates. You can also contact your state bar for a recommendation.

Further reading

Congress passes Biden stimulus bill: 6 takeaways for student loan borrowers

Stimulus Bill has this hidden tax benefit for student loans

Congress makes big change to income-based repayment: what student loan borrowers should know

Senate Passes Stimulus Bill With Tax Relief For Student Loans – Will It ‘Pave The Way’ To Cancel Student Debt?

Whether Biden cancels student debt will depend on these 3 things

Could these student loan borrowers be excluded from Biden’s forgiveness?

Can Biden cancel private student loans? 3 options

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