(CNN) – The last round of stimulus payments that began dating over the weekend are open to being seized by private debt collectors, a problem lawmakers are racing to fix.
Beneficiaries with unpaid credit cards or medical bills for which a business has obtained a judgment against the debtor could see the fresh brew withdrawn from their bank accounts, potentially preventing those in need from getting the emergency cash.
Sen. Ron Wyden, an Oregon Democrat, plans to introduce a solution that would protect payments from garnishment early this week, according to a spokeswoman.
But for now, collectors may seize money, worth up to $1,400 per person, that the federal government deposits directly into people’s bank accounts.
“We really wish this had happened before the money started pouring out. The protection would have been much more effective if the payment had been encrypted in such a way that the banks would automatically know to protect the money,” said Lauren Saunders, associate director of the National Consumer Law Center.
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Lawmakers shielded the $600 payments that were passed as part of the December stimulus, but the latest Covid relief bill did not include that shield due to the rules of procedure Democrats used to push the bill through the Senate, where no Republicans signed it.
The relief bill passed last March, known as the CARES Act, also did not include language that would protect the first round of stimulus payments, worth up to $1,200, from private debt collectors. A separate Senate bill that would have protected the payments passed by unanimous consent a few months later, but was not accepted by the House.
A coalition of advocacy groups, ranging from the National Consumer Law Center to the American Bankers Association, are urging lawmakers to fix the problem.
“Otherwise, the families who need this money the most, those struggling with debt and whose bank accounts may be frozen by garnishment orders, will not be able to access their funds,” the group wrote in a statement. letter sent to congressional leaders.
If the creditor has sued for the debt and there is a court order in place for garnishment, a bank must legally deliver the money, unless Wyden’s proposed bill passes.
Who is eligible for a $1,400 check?
The third round of payments is expected to reach about 85% of families, according to the White House. Those whose bank information is on file with the Internal Revenue Service will likely receive the money first, because it will be deposited directly into their accounts. Others may receive paper checks or prepaid debit cards in the mail.
Direct deposits began this weekend and additional batches of payments will be made in the coming weeks.
Families will receive an additional $1,400 per dependent, so a couple with two children could receive up to $5,600. Unlike previous rounds, families will now receive the additional money for adult dependents over the age of 17.
The full amount goes to individuals earning less than $75,000 AGI, heads of households (such as single parents) earning less than $112,500, and married couples earning less than $150,000. But then the payments are phased out as income increases.
Lawmakers narrowed the scope of the payments this time so that not everyone who got a previous check gets one now. It excludes people who make at least $80,000 a year in adjusted gross income, heads of households who make at least $120,000, and married couples who make at least $160,000, regardless of how many children they have.
Payments are protected from other debts
The law protects stimulus payments from garnishment for other outstanding federal debt, such as student loans or tax debt.
For the $1,200 payments authorized by the CARES Act last year, the payment was protected from all debts except delinquent child support. Congress expanded the exclusion for the second round of payments, worth up to $600, making sure the money would not be compensated even for the child support owed.
But there is another obstacle for people who were eligible but were unable to receive previous payments. Approximately 8 million households that were not sent money directly, most commonly because the IRS did not have their correct information on file. People with very low incomes are not normally required to file taxes.
Those people can claim the payment as a credit on their 2020 tax return. But none of the three Covid relief bills protects those tax credits from past due debt, even federal ones.
An IRS spokesperson told CNN last week that the agency is reviewing what might be possible to address the problem. However, people who filed their 2020 tax returns may have already lost the cash and will have no way to get it back.