Editor’s Note: This story has been updated to reflect details of the US bailout package signed by President Joe Biden.
A third round of federal relief payments to help consumers affected by the COVID-19 pandemic is coming. But some people might be disappointed if they have unpaid debts.
Payments cannot be entered for past due child support, tax arrears, or federal student loan debt. However, they can be hijacked if you are faced with a debt collection suit.
Here’s how your relief money could be misappropriated and how to prepare.
Not everyone is entitled to the relief payment. Here’s how it breaks down:
Parents will also receive $ 1,400 per dependent, subject to the same income restrictions.
Payments will come more quickly to those who have a bank account set up to receive direct deposit of their tax refund or benefits such as Social Security. For those who don’t have active direct deposit instructions with the IRS, past payments have been sent in the form of paper checks or prepaid debit cards.
The IRS has updated its website with details of the American Relief Plan. His is the primary source of information on how much to expect, in what form, and when.
The money will not be diverted to pay overdue child support that has been referred to the IRS treasury compensation program, or to pay off taxes and other government debts.
But other types of debt could put your deposit at risk.
Check to see if the account you use to receive tax refunds has overdrafts or other charges, or if you owe that financial institution money, such as a delinquent loan. If so, the bank could take your deposit. “Most banking and loan agreements have ‘netting’ provisions that give the bank the right to use the funds in the deposit account to pay other debts to that bank,” says Cara O’Neill of Nolo. .com, a legal advice website.
Also check the account you designated to receive your tax refund on your last return. If you closed it, the payment could be sent back to the IRS. If this is an account that you abandoned without closing, the payment may be made and lost due to unpaid charges.
You can try to quickly register another account to receive payment, using the IRS Get My Payment site. However, if you don’t have an alternative account yet, it can be difficult to open one and fund one now.
If you know you owe the bank, ask if their policy is not to seize stimulus funds. You can also check with your state’s attorney general’s office to see if debt collection actions have been stayed. Suzanne Martindale, senior policy advisor at Consumer Reports, notes that some states have placed limits on collections.
If you have an overdue account, a debt collector may have sued you for payment and obtained a . You should have received notice of the court hearing and garnishment. If you have lost money in the account due to previous garnishments, these orders may still be in effect. “Someone who … has been sued by a creditor or a landlord should suspect that a levy might be occurring,” O’Neill said.
If you believe your account is subject to garnishment and your state has not halted collections, the CLB advises you to monitor your account closely and withdraw your payment immediately. You can transfer it electronically to another account, use it immediately for or just withdraw money.
If your payment is seized by a creditor, O’Neill recommends that you .
If you receive a paper check, you have good options to avoid losing it to collectors, but the payment will take longer to arrive. The nonprofit National Consumer Law Center simply suggests cashing the check rather than depositing it in your bank if there might be an active garnishment order on your account. Its website says, “Grocery stores or other merchants can accept checks and provide cash back rewards that can be saved or loaded onto a prepaid card. “
But do the math first, advises the NCLC, as check cashing fees can be high and could exceed the cost of paying off your bank debts.
And of course, a prepaid debit card keeps the money in your hands, not the collectors’ hands. But you will have to be on the lookout for your card to arrive. During the second round of payments, some people thought the cards were a scam or junk mail and threw them away.
If you receive Social Security, Supplemental Security Income, Veteran’s Benefits, or other federal benefits by direct deposit, the account that receives those deposits has certain protections.
An amount totaling two months of your benefits is protected from garnishment, but only in the account that receives direct deposit. If you transfer money to another account, you lose protection.
The CLB notes that it’s not the source of the money that matters, it’s the total, so you may need to manage your account balance. He gives this example: “If two months of federal benefits for a Social Security recipient are $ 2,000, their account will be fully garnished-protected if … the total amount is less than $ 2,000.” However, before the next Social Security or other benefit payment is deposited, they will need to withdraw additional amounts to keep the new balance below $ 2,000.