The third stimulus check – $ 1,400 for each eligible and dependent adult – still lands in the accounts, providing welcome help for millions of people. But this exemption may be short-lived for some, given that $ 1,400 checks can be garnished by private debt collectors.
Unlike the second incentive payment, which was protected against seizure from private debt collectors after the first round of checks had no protection, the third round of incentive checks also does not include seizure bans. That’s because of the strangeness of the passage of the American Rescue Act through budget reconciliation, which limited legislative options, according to a March letter from the American Banking Association and other banking groups calling on Congress to take steps to protect payments.
While Congress has not acted, some states are pushing back, with governors and attorneys general banning the seizure in recent weeks. These include New Jersey, whose governor signed an executive order on March 24 to protect the latest stimulus funds against debt collectors and New York, where the attorney general prevented debt collectors from taking over $ 1,400 payments. to debtors. Other states that have adopted protections include Maryland, Massachusetts, Nebraska and Washington.
But people in states outside of that hand may not have the same protection if a debtor seeks repayment through their incentive checks. In these states, debt collectors can claim $ 1,400 checks from their debts if they sue and receive a court order that allows them to collect the money. This could prove to be a concern for people living on a salary basis or who have suffered a loss of income, which 4 out of 10 people continue to experience, according to data provided by financial services firm TransUnion.
“It simply came to our notice then [stimulus checks] being adorned could impose significant burdens on families, especially those in communities of color, who face unprecedented circumstances, “the American Bankers Association said in a letter.
Despite the belief of banking institutions that payments should be exempt from seizure, banks should comply with court orders to attract funds, the letter added.
Consumers should check the protections offered by their state to ensure that there are no limitations that surprise them. In New Jersey, for example, the governor’s executive order protects $ 1,400 payments for 30 days. With many of the first checks landing in the accounts on March 17, this would extend the protection of these payments until April 17.
To date, the IRS has issued 156 million payments in the third round of direct stimulus aid, with 25 million people this week in a row to receive $ 1,400 checks.
Protection against some
Beneficiaries of the third incentive payment, however, have some major protections. First, the IRS can’t take the money to pay taxes back or if you have other federal debts, the agency said late last month. Also, the $ 1,400 checks will not be guaranteed to pay the pension for outstanding pensions, the agency added.
At the same time, some people are asking the IRS adjust their payments from the first two checks by a line on their tax returns called recovery discount credit. This helps people get the money they are entitled to from the first two checks – which amounted to $ 1,200 and $ 600 per eligible adult, respectively – if their initial payments have fallen.
But recovery rebate credits can be reduced through federal and state debt, the IRS said. If someone owes money to the federal government or state agencies, those debts will be deducted from any additional incentive payment that people would otherwise have received. However, there is one exception: the IRS has said it will not withdraw money for due federal income taxes beginning March 18.