Debt Collectors Can Garnish the 3rd Stimulus Check But Here Is A Smart Way To Use Your Stimulus Check To Erase Your Debt


When the first stimulus checks were distributed in the U.S. in 2020 due to the COVID-19 crisis, it came as a huge relief for millions of people. But for those contemplating bankruptcy, it brought a new worry.

“Will bankruptcy take away my stimulus check?”

This has become a common question for bankruptcy attorneys across the nation. So let’s clear up your concerns about bankruptcy and your stimulus money. We’d also like to alert you to a smart way you can use your stimulus check to erase your debt.

Many Americans waiting on the third round of stimulus checks may find their payments going to debt collectors instead.

The new $1.9 trillion “American Rescue Plan” signed into law on Thursday doesn’t prevent stimulus payments from being garnished. While lawmakers tried to include a provision protecting the payments, the way the legislation was passed through budget reconciliation didn’t allow for its inclusion.

“It would be terrible if money that Congress authorized to help feed families, take care of people who are struggling…was grabbed by debt collectors to pay ancient debts,” Lauren Saunders, associate director of National Consumer Law Center, told Yahoo Money. “That’s not why we’re enacting this extraordinary relief.”

Around 158.5 million households are expected to receive a payment under the new stimulus deal, according to the White House.

The first $1,200 stimulus checks in the spring weren’t protected from private garnishment or child support, while the second payments of $600 were fully protected. Some states enacted their own protections against garnishment for the first round.

Any private debt collector that has a judgment against you can garnish the latest round of payments. Credit card and medical debt are the two most likely to be collected by debtors, according to Saunders. Stimulus checks may also be garnished by debt collectors for unpaid private student loans in some circumstances.

However, the payments can’t be garnished by the Internal Revenue Service for back taxes or child support offsets.

Sen. Ron Wyden (D-OR) is expected to introduce standalone legislation to protect the third round of checks from garnishment, but it could be too late for some since many of the payments are set to hit Americans’ bank accounts in the coming days. If the payments are sent before Congress passes any legislation, they won’t be coded in a way that alerts banks to automatically protect them.

Garnishment varies state by state, but usually the debt collector serves the garnishment order on the bank, then the bank freezes the account and gives the consumer notice. The consumer has a short time to go to court to either contest the order or assert an exemption. Unless the court lifts the garnishment order, the bank will eventually turn the money over to the collector.

Consumers may have the option to withdraw their payment before the bank has been served a garnishment. But debt collectors may have a good idea of when the payment may be deposited, according to Saunders.

“If they think they’re at risk of garnishment,” she said of consumers, “they should watch their account, and take out the money immediately.”

Instead of throwing your stimulus check away by paying old debt, you could put it to better use. A bankruptcy attorney can help you use your stimulus money to pay the costs associated with your bankruptcy, making a much bigger impact on your finances and your life.

How to Use a Stimulus Check for a Fresh Financial Start

To understand how to put your stimulus check to its best use, let’s look at an example. Imagine that you have $25,000 worth of old debt you’ve been trying to pay off for years, but are making very little progress.

This is a common scenario because the average American has $90,000 in total debt, about $20,000 of which is unsecured debt like medical bills and credit card debt. It can take a lifetime to pay it all off.

Take a moment to think about what happens if you simply use your government stimulus check to make a one-time payment toward your debt. With a $600 check or even a $2,000 check, you’ve barely made a dent in it.

Poof! Now your check is gone, but your debt remains.

Instead, think about what would happen if you used your stimulus check to fund the costs of filing for Chapter 7 bankruptcy. In this scenario, that check pays for a process that wipes out most or all of your old debt.

When your bankruptcy concludes, you have a clean slate and a fresh start. You used your stimulus check to clear away a mountain of debt, not to mention the heavy burden of stress and worry you’d been feeling.

Here’s Why You Need a Bankruptcy Attorney NOW

As you can see, making a savvy choice with your stimulus check could completely change your life. One government check goes a long way when it comes to bankruptcy!

So don’t let your stimulus check slip through your fingers before contacting an experienced bankruptcy attorney. No matter your financial situation, Northland Bankruptcy Law can help guide you to a more stable financial future. For a more comprehensive list of all the questions you might have about bankruptcy, and for a free consultation, please call (816)-452-1800. If you have further questions about your case, do not hesitate to reach out to us by the phone number, through the contact form, or by emailing [email protected].