Today, I read an interesting article regarding the third round of stimulus checks that are on the verge of being approved by Congress. These checks are part of a budget reconciliation act, and because a budget reconciliation act only requires a simple majority vote, it can be used only for limited purposes. What that translates to is the inability to protect these payments from garnishment by creditors of the recipients of these $1,400-per-person payments.
Governmental entities (IRS, child support agencies, etc.) are prohibited from garnishing these payments, but private entities (credit card companies, medical bills from doctors and hospitals) are not. So, as soon as the funds are directly deposited by the IRS into someone’s bank account, they can be taken via a garnishment order. Adding to the problem is that it is very, very difficult to reach the IRS to request a paper check or deposit to a new bank account instead of depositing the check into the account for which the IRS already has deposit information. So, if your bank account is already attached or “locked up” by a garnishment action, the IRS will still try to deposit into that account, and the payment may get garnished as a result.
Consumer and banking groups such as the American Bankers Association have called for Congress to pass a stand-alone bill through the regular channels (non-budget reconciliation) that would protect the payments from garnishment from private creditors. But, that has yet to happen. So, for the moment, those payments are subject to being taken by private creditors. And, worse yet, for our clients, that means that bankruptcy trustees may try to take those funds since bankruptcy trustees step into the shoes of private creditors when you file a bankruptcy case. Because of that, until some protection is granted, we here at WM Law recommend that new bankruptcy cases not be filed if the client is expecting to receive these stimulus payments.
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Our advice is to wait to file a case until the payments are received. That being said, you need not wait to get started on your bankruptcy filing. While you are waiting for those funds to arrive, we recommend that you go ahead and begin the bankruptcy process. We can prepare all of your filing documents and can speak with your creditors while you wait for receipt of your stimulus payments. Then, as soon as you’ve received the payments and spent them on reasonable and necessary items, we can file your case. As always, stay tuned to our blog for new developments – we’ll let you know if things change on the stimulus payment protection issue. For more information, visit our website at www.kansascitybankruptcy.com or call for a free initial consultation to evaluate your situation. At WM Law, we are here to help.