The 1,400 direct stimulus checks are one of the most important parts of President Biden’s $1.9 trillion stimulus bill, which he signed into law last week. But for millions of people in the U.S., debt collectors could come after those stimulus payments.
Through laws, Congress kept debt collection agencies from going after the stimulus payments from last year. But because President Biden’s “American Rescue Plan” went through the budget reconciliation process, lawmakers couldn’t add the same protections to this round of stimulus checks. Because of this, some Americans will be able to keep debt collectors from taking their stimulus money, but others will not.
If you’re worried that a debt collector will take your $1,400 stimulus payment, here’s what you need to know:
Student loans and debts that are paid on time
As a general rule, the lender or creditor cannot take your money or property if you are current on your loan or debt. This includes debts that haven’t gone into default and for which payments are being made on time or for which fees have been agreed to be put on hold temporarily, such as through a formal deferment or forbearance.
Defaulted Federal Student Loans
When people don’t pay back their federal student loans, the government has strong tools to get the money back. In particular, the federal government can intercept or offset federal payments, like tax refunds and Social Security benefits, and put them toward your overdue student loans.
But the CARES Act, which was passed by Congress and signed into law by President Trump last year, stopped the government from trying to collect on defaulted federal student loans for a while. After that, President Biden extended the ban until September 30, 2021. So, debt collectors working for the U.S. Department of Education shouldn’t take stimulus payments to pay off defaulted federal student loans held by the government.
Credit cards, private student loans, and other debts
With a few rare exceptions, private lenders, creditors, and debt collectors can’t take someone’s money or property without first suing them in court and getting a judgment against them. This includes people who have private student loans, credit card debt, or medical debt. After that, the lender or debt collector may have more rights to go after the debtor’s income or property. But state laws can be very different about what they can do with a judgment.
Even if a private lender or debt collector has a court order, it is unlikely that they will be able to directly stop government payments, like a stimulus check. But most states let lenders and debt collectors put a lien or attachment on a bank account to pay off a court judgment that hasn’t been paid. And the debt collector could take any money that was put into a bank account with a lien or attachment on it. This could include money from a stimulus check.
Some states have laws that make it illegal to take away stimulus checks or other government benefits to pay off a court judgment. So, if this is legal or not, it would depends on where you live, where the judgment was made, and if your state law has any relevant protections or bans.
What to do if a debt collector takes your stimulus money
If a debt collector takes your stimulus payment, you might want to talk to a lawyer who is licensed in your state. A lawyer for consumer protection might be able to tell you about your legal rights and choices. If the debt collector broke any laws, an attorney can help you get your money back, and you might be able to sue for damages.
Importantly, federal and often state laws about debt collection also say that collectors can’t be unfair or trick people into paying. For example, if a debt collector tells you they can take your stimulus check when that may not be possible or legal, you may have a reason to sue that debt collector for damages.
The National Association of Consumer Advocates can help you find a lawyer in your state who works to protect consumers. You can also ask for a referral from the state bar association.
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