Can Creditors Take Your Stimulus Check?

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A stimulus check can provide much-needed relief if you’re facing financial difficulties. To offset the economic impact of the COVID-19 pandemic, the government passed two separate laws in 2020, issuing $1,200 and $600 stimulus payments to eligible taxpayers, with additional payments for those with qualifying children.

While these payments helped countless households stay afloat, they were also targeted by creditors. Fortunately, the most recent relief contains additional protections against creditors and debt collectors.

Key Takeaways

  • Second stimulus payments are protected against garnishment by debt collectors and child support orders.
  • Your bank may or may not apply your payment to cover an overdrawn balance or fees.
  • Creditors may be able to access your stimulus payment if you have autopay or ACH transfers enabled.
  • Your state may have additional protections that exempt stimulus payments from garnishment.

Your Stimulus Money Is Protected From Some Types of Debt

The first round of stimulus payments, authorized by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, distributed 159 million payments to American households, totaling more than $267 billion. But an unintended consequence was the seizure of some of those funds by debt collectors.

Though CARES Act stimulus payments are protected from federal and state debt, such as taxes owed to the IRS, they do not have the same extensive protections as the most recent relief.

The December 2020 legislation requires banks to code second stimulus payments in a way that protects them from being garnished, including for child support, from debt collectors, and for federal debts.

When Your Stimulus Check Is Not Protected

Though the first round of stimulus payments failed to include protections from private creditors, several states issued their own orders to prevent or limit the seizure of stimulus deposits, and the recent legislation built in additional protections. However, there are still some situations in which your stimulus payments could be garnished.

You Have an Overdrawn Bank Account

If you’ve overdrawn your bank account (or owe other fees to your bank), your stimulus funds may be used to cover the owed amount, even if there’s no judgment against you. Some banks are offering relief or refunding some overdraft fees. Check with your bank for details.

You Have Autopay Set Up

If you signed an ACH authorization form, allowing a creditor or lender to automatically withdraw funds from your account, or have autopay enabled, your stimulus payment is vulnerable up to the amount authorized in the arrangement. 

You Have Debt Collection Balances: CARES Act Only

Collection agencies may have taken your CARES Act stimulus check via garnishment if you had an outstanding balance and they obtained a judgment against you. 

You Owe Overdue Child Support: CARES Act Only

When a federal or participating state payment is ready to be sent out, these payments are checked against the Treasury Offset Program (TOP) database to ensure there are no past-due debts owed. If you had unpaid child support referred to the TOP database, your CARES Act stimulus check may have been taken to cover the delinquent amount.

You can file an injured spouse form with the IRS if you received your CARES Act stimulus payment jointly with a spouse who is responsible for child support, but you are not.

Legal Protection From Garnishment

Attorneys general from 25 states signed a letter requesting that the U.S. Treasury secretary create a rule exempting stimulus check payments from garnishments. And several states issued their own orders to prevent or limit garnishment of stimulus deposits.

For example, orders passed in California and Maryland prevent stimulus payments made under the CARES Act from being garnished for payments other than child support (and, in California, for family or spousal support, or criminal restitution payments made to victims). In Massachusetts, debt collectors cannot start any new collection actions while there’s a health emergency.

Check with your state consumer protection office to learn more about your local protections.

How to Check If Your Stimulus Is Safe

You may not be able to know if your stimulus check is completely safe, but there are some signs to watch out for.

  • Past garnishment: If your bank account has been garnished in the past, you may be at risk of another garnishment, particularly if the entire debt wasn’t settled with the previous garnishment.
  • An existing judgement: You might be at risk of garnishment if you’ve had a judgment entered against you, even if it doesn’t appear on your credit report, or if you’ve been served with legal papers for a debt but didn’t respond.

If you’ve had a previous garnishment entered against you, contact your bank to find out whether your new funds are at risk. It can tell you if there’s an outstanding garnishment, the amount, and the business or entity who obtained the order.

Steps You Can Take to Protect Your Stimulus

Stop creditors from automatically taking money from your account by cancelling autopay arrangements. Call and write them to specifically “revoke authorization” to debit your account, and let your bank know that you’ve revoked authorization for the company to auto-debit your account. You can also issue a stop payment order at least three business days before the payment is scheduled.

Cancelling the payment authorization doesn’t cancel your contract. Without the ability to draft payment from your account, the company may pursue other collection actions.

Cashing a paper check, rather than depositing a stimulus check into your account, can protect you from having your stimulus garnished or electronically transferred out of your bank.

An attorney can help you deal with a lawsuit, judgment, or garnishment from a collection agency. If you need financial help, look for legal aid offices or legal clinics in your area who may offer free or reduced-cost services.