Fri. Dec 4th, 2020

Ever since the government has started to deposit a stimulus of $1200 in bank accounts of American citizens and residents, there has been a tremendous uptick in the number of recovery notices sent by the debt collection agencies to extract that money. This stimulus is a part of the CARES Act (H.R. 748) or the Coronavirus Aid, Relief, and Economic Security Act meant to help Americans during these tough times. 

There is no provision in the federal government’s version of the CARES act that would protect borrowers from Collection Agencies to take away their stimulus payments if they have a court order to garnish money from their bank account. Garnishment is a court order against the borrower that allows creditors or collection agencies to take money out of their bank account. With coronavirus relief money coming into bank accounts, the debt collectors are trying to extract this money from borrowers, which was actually intended to help people to pay for basic essentials like food, housing and child care. Even though the borrowers and collection agencies do have a legitimate and legal right to try to recover past-due debts, but this federal government payout was never intended to be a stimulus for collection agencies at all.

According to the Urban Institute, a whopping 71 million US adults had debt in collections even before the pandemic started. Due to the novel coronavirus pandemic, this number will significantly rise since 20.5 million Americans lost their job in April 2020 alone, pushing the jobless rate from 4.4% in March 2020 to nearly15% in April 2020. 

With stimulus money reaching in bank accounts, collection agencies have been sending collection letters and making debt recovery calls at a record pace. They have been rushing to the courts to secure wage and bank-account garnishment orders to recover money for their clients (the creditors). After realizing this problem, many states have come forward to protect the stimulus money from falling in the hands of collection agencies. Many states like Nevada went to the extent of blocking the debt collections activity in their state all-together for the time being. These state-level protections are meant for consumer collection agencies only. Commercial collection agencies who deal with business-to-business debts were mostly exempted from these restrictions. 

State garnishment laws vary from state to state. Many states have stopped the garnishment of stimulus checks completely. Some states are allowing garnishment of these CARES stimulus checks only if the creditors or collection agencies have a pre-existing court order. Others are allowing only a partial seizure of these checks. In other words, it all depends in which state the borrower resides. These temporary protections do not wipe-off the debt obligations; they simply protect the borrowers for the time being. Collection Agencies will again start contacting them once these restrictions are eased. Collection agencies also have limited access to Social Security, disability, and veterans’ benefits. However, some debts like child support and spousal maintenance are excluded from state protections, and the stimulus money may be collected for these types of debts.

Many national banks like Wells Fargo, Citibank and JPMorgan Chase implemented temporary policies to ensure customers with negative account balances are still able to get their full coronavirus stimulus checks. The CARES Act prohibits garnishing stimulus money for state or federal debts. At the time when many private and government entities are assisting American citizens, many fraudsters are trying to cheat citizens off their stimulus money. It is important to ask the debt collector for its company’s name and address, if he is a licensed collector in your state and ask them to provide the necessary documentation to validate the debt. Take all the adequate precautions. 

Let us see some of the temporary state restrictions imposed on debt collectors during the coronavirus pandemic.

California: On April 23, 2020, the governor of California Gavin Newsom signed an executive order (Order N-27-50) to prevent debt collectors from garnishing stimulus checks under the CARES Act. The order is retroactive, which means those debt collectors who have already garnished the stimulus checks will have to pay them back.

New York: The attorney general said banks and debt collectors cannot seize or freeze the CARES Act stimulus payments.

Massachusetts: On 3/27/2020, Attorney General Maura Healey announced an emergency regulation (940 CMR 35.00) designed to protect consumers from unfair and deceptive debt collection practices during the COVID-19 crisis. It prohibits creditors from engaging in methods of debt collection that can require people to leave their homes or have in-person contact, including filing new lawsuits against Massachusetts consumers, visiting their homes or places of work, or repossessing their cars, among other protections. The AG’s emergency regulation also prohibits debt collection agencies and debt buyers from making unsolicited debt collection telephone calls to consumers. This emergency regulation will remain in effect for 90 days or until the conclusion of the declared state of emergency.

Vermont: According to the directive issued April 21 by the Attorney General, payments authorized by the federal government’s Coronavirus Aid, Relief, and Economic Security (CARES) Act, are exempt from garnishment or collection under Vermont law.

Minnesota’s emergency executive order 20-50:  Coronavirus stimulus funds should not be intercepted by third parties or immediately garnished for consumer debt incurred before the COVID-19 pandemic. Steps must be taken to preserve these funds by limiting other garnishments as well. No provision in this Executive Order applies to Domestic Support Obligations, including child support and spousal maintenance obligations.

Nebraska, Nevada, Maryland, Ohio and Oregon also issued orders to protect these one-time stimulus payments from garnishments.

A growing number of states have issued such orders, but it is important to note that many states have suspended garnishment only till a certain date, meaning once that cut-off date is reached in those states, the debt collectors can start the garnishment process again. Things are changing quickly, and many states are extending these protections. It is important to check the latest directive issued by the governor or the attorney general for your state on their official website.

Many experts have recommended that if you do not need that money for your essentials, then they should use that money wisely. In fact, paying off the debt which you have been thinking about is not a bad idea at all, like paying off that high-interest credit card debt. 

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