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How to Protect Your Coronavirus Stimulus Payment from your Creditors

Last  Friday approximately 140 million American households started  receiving Economic Impact Payments, or Stimulus “checks.” Most Americans will be receiving these payments, of at least $1,200 or more, this week. (The amount of your payment depends on your gross income and whether you have dependents.)  The Treasury Department will be directly depositing the funds into the same bank accounts where it directly deposited your 2019 tax refund. (The Stimulus payments are also being sent to people who don’t usually  file or pay federal income taxes, for example, most people who receive monthly payments from the Social Security Administration.) You can track the status of your payment at this IRS site starting today.

The reason for these payments is that the federal government wants to try to “stimulate” the economy, which COVID-1, or the coronavirus, has wrecked.  Millions of Americans have lost their jobs or seen their pay reduced since March. It has been estimated that nearly 1 out of 5 Americans has lost a job or wages because of the virus.  When consumers don’t have money to spend, the ripple effect causes most businesses to struggle. People are not buying goods and services from brick and mortar businesses, which in turn have to lay off employees who can no longer buy goods and services from other merchants. Goldman analysts see the U.S. economy contracting 24% in second quarter, a rate nearly five times as large as bank’s previous forecast

While the government wants us to spend this money to keep the wheels of commerce rolling, some banks want to seize this money to recover money owed to them by their customers. When Congress passed the CARES Act authorizing these payments, it did not characterize the funds as federal benefits, but as tax credits. This means that private debt collectors may take the money once they are in a bank account.

Some of America’s largest banks  try to  use the Economic Impact Payment to pay themselves overdraft and other fees owed to the banks:

The American Prospect said it reached out to Wells Fargo, JPMorgan Chase, Bank of America, Citibank, and U.S. Bank asking if they planned to use the payments to offset delinquent debts. Of those, only J.P. Morgan replied, stating that “while they would normally use incoming funds to offset a negative balance, for these payments it will return the money to the government,” which could then direct the full stimulus check to the customer by mail.  

Not only could your own bank try to take some of this Stimulus cash to pay money that you owe it, but judgment creditors could attempt to garnish this money from your bank account. For more on these garnishments, check out What is Bank Account Garnishment?  Many people forget that they have judgments, which in Florida can last for at least 20 years.  And, when  a creditor does garnish your  bank account, you most likely will not know until the funds are already gone. If the source of funds in your bank account is Social Security or Veterans Benefits, your funds are protected from garnishments by a judgment creditors under a Treasury Rule from May 2011.

The ultimate defense against a wage or bank account garnishment is usually bankruptcy.  If a judgment creditor garnishes more than $600 from your account and you file bankruptcy within 90 days of the taking, you might be able to recover the garnished funds from the creditor.

If you are considering filing for bankruptcy, you might be wondering whether the bankruptcy trustee can take your Stimulus payment. The Bankruptcy Code governs what property debtors may keep–or “exempt” when they file bankruptcy. Even though bankruptcy is federal law, Congress allowed each state to decide what debtors may protect from bankruptcy trustees. Florida opted out of the federal law on exemptions, and chose to make its own laws about what property you may keep when you file for bankruptcy.  In Florida, exemptions for personal property are limited.   The Office of the U.S. Trustee, which oversees bankruptcy cases throughout the nation, anticipated this issue and sent a notice to bankruptcy trustees about the Stimulus payments.  In this Notice, the  U.S. Trustee pointed out  that under the CARES Act,  Stimulus payments will not be considered as “income” for the “means test” to see if you have the means to pay back your unsecured creditors. However, the Act does not address the issue of whether these payments are “property of the estate” and may be liquidated to pay some of your creditors. The U.S. Trustee Notice does give some direction to the local trustees on this issue:

the United States Trustee expects that it is highly unlikely that the trustee would administer the payment after consideration of all relevant circumstances, including: the modest amount of the recovery rebate; the applicability of state and federal exemptions; any interest of a non-debtor spouse in the recovery rebate; the cost to the estate of recovering and administering the recovery rebate, including litigation with debtors who may seek a judicial determination; and the extent to which recovering the recovery rebate will enable creditors to receive a meaningful distribution.

So, the U.S. Trustee does not expect local panel trustees to go after this money. Of course, there could be some trustees who attempt to seek turnover of this property, notwithstanding the U.S. Trustee’s Notice.

If you have experienced a layoff, reduced wages or loss of income, contact the Law Office of David M. Goldman, PLLC today for a free initial bankruptcy consultation. Our office has a bankruptcy lawyer who has been helping debtors discharge their debts and protect their assets for nearly 28 years.  A Jacksonville Bankruptcy Lawyer can help you decide if filing bankruptcy is best for your future.





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