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Lawmakers warn that direct stimulus payments can be seized by debt collectors

Two senators say the Treasury Department can prevent that from happening

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Americans have started receiving direct stimulus payments from the federal government to cope with the coronavirus (COVID-19), but can those payments be seized by debt collectors if those recipients are in debt?

Two members of Congress -- one Democrat and one Republican -- say they can unless the Trump administration does something to stop it.

The payments are being made as part of the $2.2 trillion CARES Act that was signed into law earlier this month. To help with the economic dislocation caused by the virus, every adult is receiving $1,200 from the Internal Revenue Service (IRS). Families are getting an additional $500 per child.

But Sen. Sharrod Brown (D-Ohio) and Sen. Josh Hawley (R-Mo.) say the law doesn’t protect those payments from debt collectors if the recipients are subject to a collection effort. The lawmakers say those payments are designed as a lifeline to households to help weather the crisis and nothing more.

Letter to Treasury Secretary Mnuchin

In a letter to Treasury Secretary Steven Mnuchin, the two lawmakers urged the Treasury Department to use its power to protect those payments from being seized.

“Congress included this critical relief in order to help American families struggling to pay for food, medicine, and other basic necessities during the novel coronavirus pandemic and resulting economic crisis,” the senators wrote in their letter.

The lawmakers, who are members of the Senate Banking, Housing, and Urban Affairs Committee, said Congress never intended that any portion of the direct payments to Americans be diverted to settle debts. 

“To ensure that American families receive the full amount of this intended relief, the CARES Act does not allow for the payment amount to be reduced, or ‘offset,’ for past tax debts or other debts owed to federal or state governments,” they wrote. “The only offset that Congress allowed is for past-due child support payments.

Not stated in the law

If Congress isn’t allowing the government to tap a recipient’s payment to settle a tax bill, the lawmakers said, then it obviously never intended private debt collectors to grab a piece of it. However, that isn’t directly stated in the CARES Act.

Brown and Hawley said the Treasury Department has the authority to establish what the law fails to state -- that CARES Act direct payments can’t be seized to satisfy private debts.

Under current Treasury rules, the two senators point out that two months of Social Security, Supplemental Security Income, and other federal payments are protected from being garnished by private debt collectors.

They say the Treasury Department can also apply this rule to protect the CARES Act direct payments from private debt collectors.  

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