Stimulus Check  Payments Are Not Protected From Creditors

We all anxiously await the first round of Stimulus Check payments from the government.

But Congress did not protect these funds from collections by Creditors.

Therefore, if a creditor (someone to whom you owe money) has the right to collect from you, they can take your CARES ACT stimulus payment from your bank account (and garnish your wages and place liens on other assets).

For most creditors, the ability to take money from a bank account (called a “levy”) or take other collections actions requires them to first file a lawsuit, and then obtain a judgment from a court.

This applies to debts such as credit cards, medical, personal injury, contracts and so on.

Some creditors, however, do not have to go through a judicial proceeding to collect.

Tax creditors, such as the IRS and Franchise Tax Board merely have to give a Notice of Intent to Levy and can then proceed to take the money.

And if you have defaulted on payments owed to the bank where you have your checking or savings accounts, they can do a “setoff” and simply take money out of your accounts without any notice or judicial process.

How can you prevent this?  A temporary solution is simply not to leave funds in your bank account(s) if your creditors have a right to collect.  But this is not a good long term solution.

Bankruptcy Will Stop Creditors From Taking Your Money

When you file a bankruptcy case, an automatic federal court injunction is issued prohibiting creditors from taking any action to collect on debts that are owed prior to the bankruptcy being filed.

This injunction is called the “automatic stay”.  It is automatic because it goes into effect instantly upon filing a bankruptcy case without any additional notice required.

If a creditor violates the injunction by taking money, or any assets, after your bankruptcy case is filed, you can get it back.   If they do it willfully, knowing of the bankruptcy filing, they can be held in contempt of court and damages can be recovered from them.

Exemption laws allow you to protect a certain amount of assets in a bankruptcy case. 

 The amount depends on the exemption laws of the applicable jurisdiction, usually that in which your case is filed**  and under which Chapter you file.

In Chapter 13 or Chapter 11, you get to keep ALL your assets/money/property so long as you do a payment plan that gives your creditors as much as they would receive in a Chapter 7 case.

**However, it can be elsewhere, depending on where you have lived for the two years prior to filing the bankruptcy case.

How Do I Determine If Bankruptcy Is Best For My Situation?

There are pros and cons–costs and benefits to filing any bankruptcy case.   As with anything in life, it is good to proceed if the benefits outweigh the costs.

A consultation with a qualified and experienced bankruptcy attorney will provide you with your options, both inside and outside of bankruptcy, for dealing with your debt issues.

The best way to learn about your options is to schedule an appointment with a bankruptcy attorney in your State.

If nothing else, you will learn about your options and how best to resolve your problems.

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