Don’t Let Your Relief Check Disappear Into Your Debts

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Federal relief payments meant to help consumers during the COVID-19 pandemic are starting to arrive. But some consumers could be in for disappointment if they have outstanding debts.

Although the payments can’t be seized for taxes or federal student loan debt, they can be diverted if you’re facing a private debt collection action. If you owe child support, the stimulus payment may be collected toward that debt.

Here’s how your relief money could be diverted, and how to prepare.

Understand whether to expect a direct deposit or a paper check

Not everyone qualifies for a relief payment. The base amount of $1,200 phases out at higher income levels. Some dependents won’t qualify for the $500 payment, and anyone lacking a Social Security number is excluded.

Payments will come most quickly to those who have a bank account set up to receive their tax refund or benefits such as Social Security. Others will receive a paper check in the mail. Check your payment type and status — including expected delivery date — using the IRS “Get My Payment” tool.

NerdWallet Guide to COVID-19

Get answers about stimulus checks, debt relief, changing travel policies and managing your finances.

Expecting a paper check? You have options

If you will receive a paper check, you have good options to avoid losing it to collectors — but payment will take longer to arrive. Checks will start going out next week, but the agency processing them can send only 5 million per week, and more than 150 million people may be eligible.

The nonprofit National Consumer Law Center suggests simply cashing the check rather than depositing it into your bank if there could be an active garnishment order on your account. Its website advises: “Grocery stores or other merchants may accept the checks and provide cash back that can be saved or loaded onto a prepaid card.”

But do the math first, the NCLC advises, as check-cashing fees can be steep and could outweigh the cost of paying off your bank debts.

Expecting direct deposit? Understand what could divert it

Several types of outstanding debt could endanger your deposit.

You owe your bank

Look into whether the account you use to receive tax refunds has outstanding overdrafts or other fees, or whether you owe that financial institution money, such as for a delinquent loan. If so, the bank could take your deposit. "Most banking and lending agreements have 'set off' provisions that give the bank the right to use deposit account funds to pay other debts owed to that bank," says Cara O'Neill of, a legal advice website.

Also, check what account you designated to receive your tax refund on your most-recent return. If you’ve closed it, the payment could bounce back to the IRS. If it’s an account you’ve abandoned without closing, the payment may go through and be lost to outstanding fees.

You could try to quickly register a different account to receive the payment, using the IRS Get My Payment site. However, if you don’t already have an alternate account, it could be challenging to open and fund one now.

If you’re aware that you owe the bank, ask whether it has a policy of not seizing stimulus money. You could also check with your state attorney general’s office to see if debt collection actions have been suspended. Suzanne Martindale, senior policy counsel with Consumer Reports, notes that some states, such as Illinois and Ohio, have put limits on collections, and others may follow suit.

You owe a debt collector

If you have a delinquent account, a debt collector may have sued you for payment and gotten a garnishment order or bank levy. You should have gotten a notice about the court hearing and the garnishment. If you’ve lost money in the account to previous garnishments, those orders could still be in effect. "Someone who ... has been sued by a creditor or landlord should suspect that a levy might occur," O'Neill says.

If you think your account is subject to garnishment and your state hasn’t halted collections, the NCLC advises watching your account closely and immediately moving your payment out. You could transfer it electronically to another account, use it immediately to cover your most-pressing bills or simply withdraw cash. It notes that many banks have waived daily ATM withdrawal limits.

If your payment is seized by a creditor, O'Neill recommends you act quickly to file an objection.

You owe child support

People owing child support may lose their payment if their state has referred the debt to the Treasury Offset Program. If you’re not sure, you can call 800-304-3107 to verify.

If you’re not the responsible party — for instance, your spouse owes the support and you’re affected only because you jointly will receive a relief payment — you can file an “injured spouse claim” using IRS Form 8379.

Do you receive Social Security or other benefits? Know about protections

If you receive Social Security, Supplemental Security Income, veterans benefits or some other federal benefits by direct deposit, the account that receives those deposits has some protections.

An amount totaling two months of your benefits is shielded from garnishments, but only in the account that receives the direct deposit. If you transfer money to another account, you lose the protection.

The NCLC notes that it’s not the source of the money that matters, it’s the total, so you may need to manage your account balance. It gives this example: “If two months of federal benefits for a Social Security recipient is $2,000, their account will be fully protected from garnishment if ... the total amount is less than $2,000. Before the next Social Security or other benefit payment is deposited, however, they will need to withdraw additional amounts to keep the new balance under $2,000.”

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