Finance & Career
Money intended to provide a little relief to Americans suffering from the economic fallout of the COVID-19 pandemic could be taken away. When consumers have seriously delinquent debt, private parties and sometimes even the federal government can take some of the money due them.
Stimulus payments can be used as an offset for the following:
Child support. In the Coronavirus Aid, Relief, and Economic Security (CARES) Act, Congress specified that past-due child support is the only obligation that would subject stimulus payments to the Treasury Offset Program (TOP). There are no exceptions to this provision. Even if you are experiencing financial hardship, TOP will still be legally allowed to seize your stimulus payment if you’re behind on child support and your state has referred those payments to TOP for collection.
Spouses who have lost some or all of their tax refunds because their partner owed debt can file for injured spouse relief to get a portion of their tax refund back.
Bank debts. If you owe money to a bank where your stimulus payment is being direct deposited, your federal payment could (under current law and policy) be taken by that bank.
For example, if your bank account is overdrawn and your stimulus payment is deposited into that account, no provision in the CARES Act prevents a bank from taking part or all of the stimulus payment to pay back the debt. It is at the discretion of each bank.
Private debt collections. The CARES Act doesn’t include any provisions prohibiting private debt collectors from garnishing stimulus money. That means if you’re behind on debt payments and have an outstanding court judgment, a private debt collector can serve you a garnishment order during the pandemic—and come after whatever money is sitting in your personal bank account, including your stimulus check.
A few states have enacted their own emergency regulations preventing debt collectors from issuing new garnishment orders. Check with your state’s attorney general’s office for details.
Stimulus payments cannot be used as an offset for the following:
Tax debt. According to the CARES Act, stimulus checks cannot be seized to offset a tax debt. That means if you owe money on your taxes or are currently on a payment plan to repay your taxes, the federal government cannot take your stimulus check from you to pay off that debt.
Defaulted student loans. Individuals with federal student loans in default, meaning that they haven’t been paid for a certain time (depending on the type of loans), won’t have their stimulus payments seized to pay back the debt. Contact your student loan servicer for more details. More information is available from the Office of the Attorney General, State of Alabama.