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Thanks to an odd clause in the most recent relief package, your $1,400 stimulus payments may be subject to garnishment by private debt collectors. While there’s talk of new legislation to address this issue, it might come too late to provide immediate relief.
What’s Happening?
To bypass a Republican filibuster, Democrats pushed the relief bill through using a process called budget reconciliation, which allows a simple majority to pass a bill in the Senate. (The Senate is currently split 50-50 between Republicans and Democrats, with Vice President Kamala Harris casting the tie-breaking vote as Senate President).
As part of the budget reconciliation process, the so-called “Byrd rule” restricts what can be included in reconciliation bills. The Senate Parliamentarian oversees this rule and occasionally removes provisions during a process known as a “Byrd bath” (with the removed provisions humorously referred to as “Byrd droppings”). Whether the debt collection clause was omitted due to the Byrd Rule or stripped by the Parliamentarian, it was not part of the final bill.
This has paved the way for private companies to pursue debt collection, especially those with a court order against your bank account. Unlike previous stimulus checks, this one is not protected from private debt collectors.
It’s important to note that the IRS won’t garnish your check for government-related debts, like back taxes or student loans. However, as CNET highlights, there’s an exception: If your third stimulus check is missing and you claim it as a rebate next year on your taxes, the IRS may use some or all of it to cover unpaid student loans or child support, according to the site.
What Can You Do About It
According to Fortune, organizations like the American Bankers Association are calling on Congress to address this issue and create separate legislation that prevents collectors from garnishing stimulus payments. Oregon Senator Ron Wyden (D), chair of the Senate Finance Committee, has promised to take action, but no current federal bill halts debt collectors from garnishing your relief check. If new legislation moves quickly, it’s possible garnishment could be stopped before collectors can act.
Some states, like California, do offer protections against garnishment of stimulus checks, so it’s a good idea to check if your state has such safeguards.
Finally, if you're concerned about garnishment, you can withdraw the funds from your account as soon as you notice the deposit. As Lauren Saunders, associate director of the National Consumer Law Center, advised in an interview with Yahoo!: “If [people] believe there’s a risk of garnishment, they should monitor their accounts and withdraw the money right away.”
