Can Debt Collectors Seize Your Stimulus Check During COVID-19?

The Buchalter Law Group

For individuals and families who experienced a layoff or unexpected medical expense due to the COVID-19 pandemic, the CARES Act promised a small yet welcome form of relief: the stimulus check.

For people earning up to $75,000 per year, the stimulus check would be $1,200, plus $500 for each dependent. The size of the check would decrease with salaries above $75,000, phasing out completely at $90,000. While this amount won’t cover more than a month of minimum-wage work, it will nevertheless help low-income or debt-ridden families who are struggling to make ends meet.

Unfortunately, some may never see the check.

The CARES Act protects stimulus checks from being included in bankruptcy calculations or taken by the government (except to cover unpaid child support), but it doesn’t prevent banks and debt collectors from seizing the funds. Some states have explicitly prohibited lenders and collection agencies from taking stimulus checks to cover unpaid debt, but Florida is not one of them.

How Could You Lose Your Stimulus Check?

Generally, COVID-19-related legislation has not changed the way agencies can collect debt from consumers. If a collection agency or lender files a lawsuit because you haven’t paid your debt, the court may grant a judgment against you—even during the pandemic.

This judgment could allow the creditor or agency to garnish your wages (i.e. order your employer to withhold a portion of your paycheck and send it to the creditor or agency) or freeze your bank account.

A frozen bank account (also called a levy or attachment) prevents you from transferring, withdrawing, or otherwise accessing funds until the levy is removed. While it’s frozen, the bank or lender can withdraw money to cover what you owe.

If you (or the IRS) deposit your stimulus check into an account that an agency has levied or intends to levy, you may lose the federal relief.

How to Protect Your Stimulus Check

If you have been contacted by a collection agency or notified of an impending lawsuit, you must act quickly. Failing to respond to a notice can lead the court to grant an automatic judgment against you.

One way to prevent a debt collector from seizing your stimulus check is to withdraw it or spend it on essentials right away—before the collector has the opportunity to freeze your account.

Another option you may want to consider is bankruptcy. While many believe this is a drastic strategy that causes irreparable harm, it serves as a welcome relief for hundreds of thousands of people each year. All forms of bankruptcy trigger an automatic stay, which pauses all collection actions for the duration of the case. If you’re struggling to pay your bills or receiving constant calls and letters from debt collectors, bankruptcy could put a permanent end to your financial hardship.

To learn whether bankruptcy may be right for you, call (321) 320-6088 today. Our team at The Buchalter Law Group has 45+ years of experience helping clients free themselves from unmanageable debt, and we want to put that experience to work for you.

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