US Treasury Department Is Looking Into Stopping Debt Collectors From Seizing Stimulus Checks

According to a report by The Hill, the U.S. Treasury Department is investigating whether or not it can prevent private companies and debt collectors from seizing people's coronavirus stimulus checks. The legislation that established the checks has a provision in it that ensures no one will lose their money if they owe back taxes to the government. However, the legislation does not contain any protections for people whose wages are currently being garnished because of private debt. Therefore, if a person owes a bank or a private company a significant amount of money, their stimulus check could be seized to pay off that debt.

Wage garnishment -- which occurs when a person has failed to pay a significant debt -- is court-ordered, with which banks and credit unions have to comply. Since the language in the CARES Act isn't specific about whether the stimulus checks apply to wage garnishment court orders, banks and credit unions are currently required to follow the orders, which necessitate they seize any form of extra income, including the coronavirus stimulus checks.

As of this writing, it is unclear whether or not the Treasury Department can override these court orders and prevent the checks from applying to wage garnishment orders.

Secretary of Treasury Steven Mnuchin (L) speaks during the daily briefing of the White House Coronavirus Task Force
Getty Images News | Alex Wong

Last week, ABC News reported that attorneys general from several states sent a letter to the Treasury Department asking them to come up with a solution to this wage garnishment issue. The letter pointed out the language of the CARES Act doesn't specify debt collectors cannot seize the stimulus checks of people with significant debt.

CNBC reported over the weekend that individual states are taking action to prevent banks and private debt collectors from withholding the government money from individuals. Letitia James, New York's attorney general, announced that debt collectors would not be allowed to stop the coronavirus stimulus checks from getting to New York residents. Officials in Ohio and Oregon have issued similar orders, which state creditors would not be allowed to prevent residents of their states from receiving the full amount of their stimulus checks.

Each of these officials commented that the intent of the money was to allow people to deal with current expenses. They pointed out that the millions who have become unemployed during the coronavirus pandemic have no way to pay their bills, including their mortgages and rent, and losing that money to a creditor would put them even further behind. Lawmakers on both sides of the aisle have echoed these sentiments.