Protecting Your Pandemic Relief Payment from Creditors
Your $1,200 or so coronavirus relief payment is subject to seizure by your creditors, if they have a garnishment order on your bank account.
Our blog post four weeks ago was about the $1,200 pandemic relief payments going out to most U.S. adults. The CARES Act explicitly protected these payments from seizure for certain governmental debts. Generally, the payments can’t be reduced or taken to pay past-due federal taxes and student loans. They can be for past-due child support obligations.
But the CARES Act made no mention of protection from debts owed to non-governmental creditors. So the relief payments are generally subject to possible seizure by your creditors. Today we address this concern about private creditors’ access to these payments.
There are two classes of creditors at play:
Setoffs by your own bank or credit union for a debt you owe to it
Garnishment by other creditors which have a judgment against you
Next week we address setoffs by for fees or other debts owed to your own financial institution. Today is about protecting your relief payment from other creditors.
Judgments and Garnishment Orders
Generally a non-governmental creditor can’t take money from your bank account without a court’s garnishment order. And to get a garnishment order a creditor virtually always must first sue you and get a judgment. (This assumes that the creditor isn’t a governmental agency or the bank/credit union itself.) If a creditor has an active garnishment order on your bank/credit union account, your relief payment would arrive there and go to pay the debt instead of giving you the financial relief you need.
Do You Have a Garnishment Order on Your Bank/Credit Union Account?
This question is not necessarily so easy to answer, for a number of reasons.
First, although most of the time you’d know that you received lawsuit papers, not necessarily. You may have not noticed it in the mail. It may not have looked much different from other collections paperwork. If you’ve moved a lot, it’s possible you didn’t even get the lawsuit papers.
Second, you may not know that the lawsuit resulted in a judgment. If you didn’t respond within a very short time to the lawsuit papers, you probably lost the lawsuit by default. That almost always immediately turns into a judgment—a court decision that you owe the debt. The judgment gives the creditor power to—among other things—garnish your bank account.
Third, you may not know about the garnishment order, or the pertinent details about it. For example, you may think it only applies to your paycheck, not your bank account. Or the bank garnishment order may have happened a while ago and you don’t realize that it’s still active.
Fourth, the laws about lawsuits, judgments, and garnishments are detailed, complicated, and different in every state. And they change (sometimes in a good way, as we show below.) So what you may have heard in one situation may not apply at all to you regarding these relief payments.
Finding out If You Have a Bank Garnishment Order
Some common sense questions you should ask yourself. Have you:
ever received lawsuit papers and then did not fully resolve the debt?
had any kind of creditor garnishment or seizure, even if unrelated to your bank/credit union account?
had anything repossessed, especially a vehicle, where you may still owe a balance?
gone through a real estate foreclosure in which you may still owe a money to junior mortgage or other lienholder?
moved from another state and thought you left unresolved debts behind?
In these and similar situations you may have a judgment against you and a garnishment on your bank/credit union account. So your relief money would likely go to pay the judgment before you’d get any of it.
Is there any more direct way of finding out if there’s a garnishment order? Yes, you could contact your bank/credit union and ask. The problem is that in the midst of the pandemic you may well have trouble getting anyone to answer. More to the point, you’d likely have trouble getting through to somebody who could accurately and reliably answer this question.
A debtors’ rights or bankruptcy lawyer could help. He or she likely knows the right people to call at your financial institution, including that institution’s lawyers.
What to Do if You Do Have a Garnishment Order
First, every state has exemptions that you may be able to claim to protect the relief money from garnishment. Each state has different procedures for claiming those exemptions. An extra challenge during the pandemic is getting access the courts to assert your exemption rights. Many courts are physically closed, you may be subject to a stay-at-home order, and contacting a lawyer may be harder. But if you don’t want to lose your relief money, you’ll likely need to assert your exemption protections.
Second, you may want to consider some other tactical steps:
If a garnishment order has expired and the creditor needs to renew it, you may have time to take the money out of the account immediately after it arrives.
Has the IRS has not yet direct-deposited your payment? Then you may be able to redirect it to an account at a different (non-garnished) financial institution. Go to the Get My Payment webpage to provide new bank account routing information (if it’s not too late).
Are you currently waiting to receive the relief payment in paper checks? Consider NOT providing the IRS direct deposit information even though that may delay the payment. (Here’s an article with the dates that the IRS is mailing out paper checks, based on income.)
Third, a number of states are issuing orders to prevent garnishments of bank accounts:
• New York Attorney General Guidance on CARES Act Payments
• Oregon Governor’s Executive Order 20-18
• Washington State Governor’s Proclamation 20-49 Garnishments and Accrual of Interest
This list is expanding all the time. So if your state isn’t listed here it may have acted after this writing (4/27/20).
This IS Complicated
Garnishment law is detailed and not at all straightforward. And that was before all the legal and serious practical complications caused by the pandemic. So if at all possible, get through to a debtor’s rights or bankruptcy lawyer. We have spent our professional lives helping people deal with garnishments and protect their assets from creditors. This is just another twist on what we do all day every day.