The stimulus funds sent to New Yorkers will be protected from garnishment for unpaid debt, New York Attorney General Letitia James announced in a guidance issued to banks, creditors and debt collectors Saturday.
“As the coronavirus crisis continues to wreak havoc on our society, I will do everything in my power to protect the wallets of every New Yorker,” said James in a press release. “Today, we are taking concrete action to ensure debt collectors keep their hands off New Yorkers’ stimulus payments. This official guidance makes clear that banks and debt collectors cannot freeze or seize stimulus funds that are on their way to New York families, and any institution that violates this guidance will face swift legal action from my office.”
James’s office said that the guidance is based on federal and state consumer protection laws, in particular state law that protects public benefits essential to a person’s life: “Under New York law, certain types of property — including public benefits like public assistance, social security, and veterans’ and retirement benefits — are exempt from execution, levy, attachment, garnishment, or other legal process by a judgment creditor seeking to satisfy a monetary judgment. The New York State Court of Appeals has held that exemption statutes “are to be construed liberally in favor of debtors” because exemptions “serve the important purpose of protect[ing] the debtor’s essential needs,” James explained on the attorney general’s website.
James wrote in her guidance that “CARES Act payments are similarly aimed at the debtors’ essential needs, and therefore should not be subject to garnishment and similar legal process. Banking institutions are advised that they should treat CARES Act payments as subject to the same protections as statutorily exempt payments.” She also specified that this guidance does not apply to “any actions to collect past due child support.”
Critics of the $2 trillion CARES Act have noted the stimulus package does not specifically exempt the payments from private debt collection, a provision which Treasury Secretary Steven Mnuchin did not include in the legislation.
“Protecting wages and money deposited in a bank account from seizure by creditors is critical during the current coronavirus emergency. Millions have lost their jobs and face significant obstacles to finding new work with stay at home orders in place around the country. Garnishment represents a threat to families’ livelihood and public health when funds are needed to pay for rent, food, utilities, medicine, and other basic necessities,” said the National Consumer Law Center on its website.
As of Saturday, Mnuchin and the federal government have not made the exemption, leaving states to work out their own policies—see a list of state-by-state protections here.