Many were struggling with debt even before the novel coronavirus outbreak — according to the Urban Institute, in 2018 almost a third of Americans had debt in collections. That figure will only increase as the country deals with the fallout from this unprecedented crisis.
This is why a lot of people are worried that their stimulus checks will be swallowed up by debt collectors. For those struggling to pay for essentials such as food and housing, losing that one-off payment of $1,200 will mean losing a much-needed lifeline.
Unlike some government payments — such as Social Security and disability benefits — your stimulus check is not shielded from all debt collectors by federal law.
Cash you owe to federal or state authorities can be seized only to pay child support. But the CARES Act does not protect you from private debt collectors, nor will it stop a bank from putting that money toward existing fees or overdrafts.
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Several big banks have promised not to use stimulus checks in this way, but debt collectors have made no such promises. If you have a court judgment against you, your stimulus check could be taken directly out of your account, which is also called garnishment. Courts can also order that your account be frozen. That’s why a number of states have put their own legislation in place to protect the hardest-hit.
To be clear, if you owe money but there are no court judgments against you, debt collectors cannot take money out of your account. Make sure you check your credit reports regularly so that you are not caught unawares.