Debt collectors can't touch coronavirus stimulus money, Indiana Supreme Court rules

Indiana residents who owe money and worry that creditors will try to seize their stimulus funds were granted relief on Monday by the state’s highest court.

The Indiana Supreme Court ruled that local courts cannot issue new orders that allow collectors to access payments made to debtors under the federal Coronavirus Aid, Relief, and Economic Security Act, with an exception made for child support payments.

If there are existing holds on a debtor’s account that could impact their stimulus funds, the court said, then that person is entitled to an urgent hearing during which the court will determine whether their money is exempt.

The order pertains to stimulus money, not other wages. Under the federal CARES act, individuals earning $75,000 or less will receive $1,200 and joint filers earning $150,000 or less will receive $2,400, with families who have children under 17 receiving an additional $500 per child, USA Today reports. The Treasury Department said about 80 million Americans will receive their direct deposit by April 19.

The Supreme Court order is a response to a request from Indiana Legal Services, Prosperity Indiana, Neighborhood Christian Legal Services and the Indiana Institute for Working Families that asked the court to exempt the payments from attachments, holds or garnishments.

“Because of this court decision, the federal intent of these funds will thankfully be honored at home,” Jessica Love, executive director of Prosperity Indiana, said in a news release.

The petition aimed to alleviate concerns from debtors, particularly low-income individuals, that their stimulus money would not be protected, according to Jon Laramore, executive director of Indiana Legal Services. Laramore told IndyStar he has not yet dealt with clients who have seen their stimulus payments garnished but added that everyone has not received their payouts.

The petition, according to Laramore, sought to prevent the garnishment from happening.

“The other agencies that petitioned with us all work with low income clients about financial issues,” Laramore said. “And they certainly foresaw this problem, too.”

The request also addresses a perceived lack of clarity from Congress on whether collectors are entitled to the money. While collectors generally can’t take benefits like disability or Social Security payments, some officials have said it’s unclear with the stimulus money.

The potential loophole prompted 25 state attorneys general to write to Treasury Secretary Steve Mnuchin on April 13 to ensure that debt collectors would not be able to take Americans’ stimulus payments, USA Today reported.

“There was a push to have the Treasury Department code these as federal benefits so that they would be protected,” Erin Macey, a senior policy analyst at the Indiana Institute for Working Families, told IndyStar. “And now, instead, we’re seeing state by state responses.”

Macey pointed to a National Consumer Law Center report listing several state and local governments, such as Las Vegas and Washington D.C., that have stayed the enforcement of all new and existing garnishment orders.

The Indiana Supreme Court noted in its decision that there was no opposition to the argument that stimulus payments should be protected against garnishment. Some parties did, however, argue that the petition reached too far by seeking to invalidate all bank attachments.

The petition asked the court to ban lower courts from allowing any holds or garnishments from accounts. The Supreme Court said in its decision that while it does have the authority to do this, it will instead tailor its order specifically to stimulus funds to avoid impeding “legitimate collection efforts.”

The order said that the ruling will remain in effect until the end of the public emergency, though it’s somewhat undetermined when exactly that will be.

In Washington D.C., where officials prohibited debt collection during the pandemic, the City Council said the ban will remain in effect for 60 days after the end of the public emergency, according to the legislation.

“It might be worth looking at extending the date (in Indiana) to provide people with a little bit more of a buffer,” Macey said.