Stimulus checks: Debt collectors can garnish your $1,400 payment

Many Americans waiting for the third round of stimulus checks may find that their payments go to collection agencies instead.
The new $ 1.9 trillion American Rescue Plan, signed Thursday, does not prevent stimulus payments from being garnished. While lawmakers tried to include a provision to protect payments, the way the legislation was passed by budget vote did not allow its inclusion.
"It would be terrible if the money Congress authorized to feed families, to take care of people in trouble ... was confiscated by debt collectors to pay off old debts," said Lauren Saunders, assistant director of the National Consumer Law Center, opposite Yahoo Money. "That is why we are not putting this extraordinary relief into effect."
Stimulus Check: US Government Check, Payment
Around 158.5 million households are expected to receive a payment under the new economic agreement, according to the White House.
The first $ 1,200 stimulus checks in the spring were not protected from personal garnishment or child support, while the second $ 600 payments were fully protected. Some states enacted their own protection against seizure in the first round.
Any private debt collector who has a judgment against you can garnish the final round of payments. Credit card and medical debt are the two most likely to be collected from debtors, according to Saunders. Under certain circumstances, stimulus checks can also be garnished by debt collection agencies for unpaid private student loans.
Read More: Here's what Joe Biden's $ 1.9 trillion "rescue plan" says that could help your wallet
However, payments cannot be garnished by the Internal Revenue Service for back taxes or child support payments.
Senator Ron Wyden (D-OR) is expected to introduce separate laws to protect the third round of checks from garnishment. For some, however, it might be too late as many of the payments will be coming into Americans' bank accounts in the coming days. If the payments are sent before Congress passes laws, they will not be encoded in a way that will warn banks to automatically protect them.
The garnishment varies from state to state, but usually the collection agency will service the garnishment order at the bank, then the bank will freeze the account and notify the consumer. The consumer has a short period of time to go to court to either dispute the order or claim an exemption. If the court does not overturn the attachment notice, the bank will eventually hand the money over to the collector.
Consumers may have the option to withdraw their payment before a garnishment has been served on the bank. However, according to Saunders, collection agencies may have a good idea of ​​when the payment can be deposited.
"If you think you are at risk of attachment," she said of consumers, "you should take care of your account and get the money out immediately."
The Yahoo Money sister site Cashay has a weekly newsletter.
Aarthi Swaminathan contributed to the coverage.
Denitsa is a writer for Yahoo Finance and Cashay, a new personal finance website. Follow her on Twitter @denitsa_tsekova
Continue reading:
Stock market highs, booming real estate, and millions of unemployed: A story of two Americas amid the coronavirus pandemic
Senate passes Biden's $ 1.9 trillion bailout package, including $ 1,400 stimulus checks
Jobs are not recovering for black Americans - and it could be worse than reported
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