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How Creditors May Snatch Your Stimulus Check and What to Do About it

Updated: Apr 28, 2020

UPDATE (4/28/2020): Pursuant to Executive Order N-57-20, debt collectors cannot garnish COVID-19-related financial assistance. A copy of the Governor's order can be found here.

Stimulus checks have started arriving in many people’s bank accounts by direct deposit. That is good news for the millions of out-of-work Americans that desperately need the money to feed their families, pay rent and utilities, and obtain other basic necessities.

But there is a dangerous loophole in the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) that allows creditors or debt collectors take those payments directly from people’s bank accounts to satisfy outstanding court judgments. This is because the CARES Act does not explicitly designate the emergency stimulus payments as exempt from garnishment or seizure (like social security and veterans’ benefits). On April 13th, twenty-five State Attorneys General (including California’s Xavier Becerra) urged the U.S. Treasury to utilize an already-existing mechanism by coding them like other federal benefits that are exempt from garnishment or seizure. Unfortunately, to date these advocacy efforts have not been successful.

Some states and local governments have issued emergency orders to stop all or some garnishments of stimulus checks. The Massachusetts Attorney General, for example, issued guidance on April 13th interpreting an exemption under Massachusetts law for “public assistance” as including CARES Act funds.[1] Ohio likewise declared stimulus payments exempt as payments in compensation for loss of future earnings.[2] And on April 14th, the Illinois Governor issued an order suspending all garnishment summons, wage deduction summons, or citations to discover assets on consumer debtors or consumer garnishees.[3] Texas has issued a similar order.[4]

While California has not yet taken these steps, as a practical matter, creditors have little to no ability at this time to open a bank levy with the Sheriff while the county and State shelter in place orders are in effect. But those individuals whose bank accounts were or are frozen due to a bank levy before the orders were in place may be in a different position and should seek legal counsel as soon as possible.

In the meantime, California can and should follow the lead of Massachusetts and Ohio by declaring that the CARES Act payments fall under existing state exemptions. Specifically, the public assistance exemption or the unemployment benefits exemption.

Additionally, at-risk recipients can take the following actions now to protect their CARES Act checks:

1. Monitor your account closely and withdraw the funds when they arrive.

2. Withhold direct deposit information from the IRS (when it does not already have this information).

3. If your bank account has already been levied, assert exemptions under state law with the help of a lawyer.

4. Consider contacting your local representative to urge them to protect stimulus checks from seizure.

This issue is evolving day-by-day. You can learn more about the major consumer protections announced in response to COVID-19 on the National Consumer Law Center’s website, available here:

[1] Emergency Regulation 940 C.M.R. 35.00. [2] Ohio Gen. Notice of Applicability of State Law Exemption to Payments under Federal Cares Act (April 13, 2020). [3] Governor’s Executive Order 2020-25. [4] Supreme Court Tenth Emergency Order Regarding the Covid-19 State of Disaster (April 9, 2020).

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