Can Debt Collectors Take My Stimulus Check?

When it comes to government programs, little if anything runs smoothly for the little guy. As you might have guessed, some big entities like Ruth’s Chris Steak House and energy companies helped themselves to tens of millions of dollars in loans meant for the Paycheck Protection Program. Thanks to some lobbyist-pleasing loopholes in the law that allowed these publicly traded companies to call themselves small businesses, they looted the fund bare, leaving actual small businesses without millions in capital out in the cold. Then some of them paid out billions in bonuses while furloughing workers(Disney), announced layoffs after the six-month retention limit (United), and in general behaved… well, as Americans have come to expect that they would.

Even Harvard got in on the act. Yes, Harvard, the one with the $40 billion endowment? Harvard tapped the CARES funds – provided by the American taxpayer – to the tune of around $9 million. So did the Church of Latter-Day Saints – the one with a $100 billion wealth fund – for $54 million.

Thanks guys. Really. So much.

With many small businesses unable to access the Paycheck Protection Program and pay their workers, many working people only hope to get their stimulus check. The program has been beset by delays, unlike the big companies who got their money, may people are going to the IRS website, looking every day for a clue as to when their stimulus check might arrive and at least buy some food and toilet paper, or pay the rent for one more month.

But.

Debt Collectors CAN Take Your Stimulus Check

First and foremost, if you owe child support, you can kiss that check goodbye. Just as with bankruptcy, child support and spousal support always get the first cut. However, there are other ways for the check to be diverted from your possession.

Some states, such as Indiana, have placed a moratorium on new garnishments, but for those with prior judgements, a hearing is required before protecting any part of the stimulus check. And those outstanding judgements are part of the problem. Millions of Americans have outstanding judgements and collection actions against them. In some cases, the electronic funds transfer could send the money to a closed or overdrawn account. People already in dire straits may have to prove in court that the funds ought to be exempt from collection, but that’s a hard proposition at the best of times.

This is not the best of times.

How to Keep That Check Safe

There are two ways to make sure that stimulus check reaches you and that you can use it for your needs. The first method is to redirect the payment to another bank account that you know is free of overdrafts and away from any bank where you have an account in arrears. The second is not to have it sent to a bank at all, but to wait the extra time out for a paper check. The first paper checks should be in the mailbox to people making up to $20,000 per year by May 1st, then those making up to $40,000 by May 15th, and so on in higher bands up to September 11th. A paper stimulus check mailed to you cannot be intercepted and thus will go right into whatever need you have for it.

Should I File for Bankruptcy Now or Later

For most of us, $1,200 is maybe enough to cover rent and some groceries, if that. For people who have lost their jobs, are not getting any paycheck protection, and who may not be eligible for unemployment, it’s a flimsy paper shield against a cannonball. We can’t be sure that other funding to keep working Americans will be issued, or how much. We don’t know if there will be moratoriums for rent and mortgages, or if there will be an expansion of safety-net programs. We can’t even be sure that our health insurance will cover our expenses should we fall ill, or leave us stuck with thousands of dollars in out-of-pocket costs.

There is a time to consider filing for bankruptcy, and this is the time, especially if you were on the edge of insolvency before COVID19 blew up in our faces. It can also prevent the garnishment of your stimulus check via the automatic stay, and also prevent all collection actions going forward. For those still employed, it can mean breathing room, being able to pay essentials and either let the Chapter 13 or Chapter 7 process work on your behalf. For small businesses, the revamped Chapter 7 process offers relief from debts via liquidation, while Chapter 11 offers a chance to reorganize and stay open.

You should know that filing for bankruptcy previously made a business ineligible for the CARES Act loans via the SBA. Considering the rapidity with which the fund was looted, and the precarious situation of many small businesses, it remains to be seen what our elected representatives will do with the next batch of relief. Until it becomes clear, it might be time to prepare for the worst while hoping for the best. Get your paperwork together, then call Van Horn Law Group and get the advice you need from experienced debt attorneys. We even offer a zero-down bankruptcy to help when you need it most.

Van Horn Law Group Can Help!

No, it’s not the best of times, but we are still open and working to help our clients. Your first consultation – either by phone or video – is still free. We know that there are hard times ahead, and we want you to come out of them as whole as possible. You might not need to file for bankruptcy, but you could use the best legal advice available when it comes to debt and a sudden drop in income. Get in touch with us, and we’ll do our very best to get you in a good financial position, using all the legal tools at our disposal. We want to hear from you, so make that call!