Senate bill to protect coronavirus stimulus checks from debt collectors

Stimulus checks are coming, but when and how much is uncertain for now. Before the next stimulus checks are passed, the Senate, however, wants to make sure that you are able to use the full amount that you get. For this, the Senate, on Wednesday, passed legislation to protect coronavirus stimulus checks from being garnished by banks or debt collectors.

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Protecting coronavirus stimulus checks from debt collectors

The CARES Act carried a provision to protect the stimulus checks from being used to pay for unpaid taxes or other debts owed to state and local governments. It did not, however, prevent private debt collectors from chipping away at the direct payment.

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On Thursday, the Senate passed bill S. 3841 by unanimous consent to plug this loophole. The bill titled “A bill to protect 2020 recovery rebates for individuals from assignment or garnishment, and for other purposes” was first introduced in May by Senators Chuck Grassley (R-IA), Sherrod Brown (D-OH), Ron Wyden (D-OR) and Tim Scott (R-SC).

This bill fixes a problem that many Americans faced after they got their first stimulus checks. Several banks used their customers’ stimulus checks toward their past debts. The bill works similar to how Social Security payments are protected from garnishment.

Sen. Grassley, the Chair of the Senate Finance Committee, said this new bill is a “common sense measure” that will ensure coronavirus stimulus checks help those in need “during these trying times” and not “end up in the pockets of creditors and debt collectors.”

How does this bill work?

As per the bill, if the direct payments are in the form of a direct deposit, then the Treasury Department needs to encode the payment. The encoding will help banks to identify such payments and then protect it from being garnished by debt collectors.

For payments in other forms, such as checks, the bill says that individuals need to request the bank or any other financial institution to protect their coronavirus stimulus checks from debt collectors.

Senators have requested the House to approve an identical version of the bill. The Senate can’t send this bill directly to the House because it is a tax bill. Only after the House passes an identical bill and sends it to the Senate, it could then be sent to President Trump.

Once this bill turns into law, its provisions would serve as an amendment to the CARES Act. This means it would be retroactive. However, it is not clear how the provisions would apply to checks that have already been garnished.

This bill would have been more effective had it came in May, or earlier. The IRS has already sent the majority of payments with just a few million remaining now. Nevertheless, it would still be helpful to those yet to get their first stimulus payment and those who will get the second stimulus checks.

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