Millions of Americans could lose stimulus payments to debt collectors

Packs of freshly printed 20 USD notes are processed for bundling and packaging at the US Treasury's Bureau of Engraving and Printing in Washington, DC July 20, 2018. - The dollar slid against the euro and pound on Friday, July 20, 2018, as US President Donald Trump adopted an aggressive posture on trade and foreign exchange, stoking talk of a currency war in addition to a trade war. (Photo by Eva HAMBACH / AFP) (Photo credit should read EVA HAMBACH/AFP via Getty Images) (EVA HAMBACH, CNN)

CNN – Millions of people received their stimulus payments from the federal government this week, but some are at risk of immediately losing the money if they owe credit card, medical, or private student loan debts.

A loophole in the law could mean some of those who are most in need of the emergency aid don't get the money. About 33% of people in the United States have debt in collections and could be impacted, according to the National Consumer Law Center.

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The $2.2 trillion congressional coronavirus relief plan passed in March did not shield the stimulus payments from certain private debt collectors, though it specifically protected the money from being taken to cover unpaid taxes or federal student loan payments. (The law does allow the money to be garnished for child support payments.)

Twenty-five state attorneys general and the Hawaii Office of Consumer Protection warned about the problem in a letter sent this week sent to Treasury Secretary Steven Mnuchin, asking him to issue guidance protecting the payments from private debt collectors, too.

Democratic Sen. Sherrod Brown of Ohio and Republican Sen. Josh Hawley of Missouri also called on the Treasury Department to prevent garnishments for private debts.

Despite the bipartisan push, Treasury hasn't issued new guidance. The agency did not respond to a request for comment Wednesday.

Some states and local governments -- including Massachusetts, Ohio, Illinois and Washington, DC -- have issued their own orders to shield the stimulus payments from private debt collectors.

The stimulus payments are meant to provide emergency assistance during the coronavirus outbreak. Though high-income earners are excluded, a majority of people are eligible for some money.

The IRS began sending out payments this week, starting with those who already had bank account information on file so that it could directly deposit the money. For others, the IRS will send out paper checks -- though it could take weeks, or even months, for people to receive those. A collection agency can't garnish the check unless you deposit it into an account it has access to.

To avoid having the stimulus payment garnished by a debt collector, monitor your bank account closely and take out the money as quickly as possible, suggests Lauren Saunders, associate director at the National Consumer Law Center.

She said many Americans may not know their bank account is at risk of seizure because they have not been served properly in a collection lawsuit.

The stimulus payment should be deposited in the same bank account where you received your tax refund in either 2018 or 2019.

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