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Can a Debt Collector Garnish My Stimulus?



I just got good and bad news at the same time. First, I’m going to get the latest stimulus check because my income is low enough to qualify. But I also got notified that a debt collector has a judgement against me – and he says he can take my stimulus check!

Is he right? I remember reading that stimulus checks were protected from that sort of thing. Why else have a stimulus check if others can seize it? I want to use the check to pay my rent, which I’m way behind on.

– Marcy in Colorado

Howard Dvorkin, CPA responds…

You’re both right, but the debt collector is currently right.

You’re correct, Marcy, that previous stimulus checks were immune from being “garnished.” That’s the official term for what the federal government defines as the “legal procedure in which a person’s earnings are required by court order to be withheld by an employer for the payment of a debt.”

For the original CARES Act and its follow up – it didn’t have a catchy name, and even the major media outlets called it the “second stimulus package” – your checks were shielded from garnishment. It was actually written into the law Congress passed.

What’s different about the third round of stimulus

The third round of stimulus – under the name American Rescue Plan – doesn’t have that protection. I’ll explain why in a moment, but for now, it’s important to know this: If you’ve been sued in civil court for unpaid debts, and if a judge ruled you must pay it, your wages can be garnished. That now includes your stimulus check.

This also applies if you received a court summons and ignored it. That could lead to a “default judgment,” which essentially gets you to the same place. Namely, your debtor can simply take your money before you even see it.

Since this is a court proceeding, you can fight it. Lawyers aren’t cheap, though. One option is Legal Aid, which offers free consultations and can even help you find a local attorney. Legal Aid is actually established by an act of Congress, and you can find the office nearest you here.

Speaking of acts of Congress, you mention you need help paying your rent, Marcy. Last year, Congress and President Trump created a process that lets tenants halt eviction proceedings. President Biden announced in late March he was extending that until June 30.

You can also read this, Marcy: 7 Things to Do When Facing Eviction for Not Paying Rent.

Why the third stimulus leaves Americans open to garnishment

To end back at the beginning, let me explain why this stimulus check can be garnished while the others couldn’t be. In a word, it comes down to politics. For the first two rounds of stimulus, Republicans and Democrats mostly agreed on the contours of the stimulus packages. The third round, however, didn’t have that same bipartisan flavor.

With Democrats holding a narrow margin in Congress, the only way they could quickly pass a third stimulus package was through a process called “budget reconciliation.” It comes with limitations, however, and one of them says you can’t ban things like garnishment.

The bottom line

I’ll end with this: Marcy, don’t look at it like someone seized your money. While it’s unpleasant, the end result is actually good. You’re settling your debts. Of course, there are easier ways to get debt-free. If you’re struggling with your debts, Marcy, can help you pay them down without the stress you’re obviously feeling right now.

Find the best solution to deal with debt so you can avoid garnishments.

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