Debtors should be wary of keeping coronavirus stimulus money in the bank, economist says

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AUSTIN (KXAN) — Millions of Americans are still receiving their first wave of coronavirus stimulus payments, but in some cases, debt collectors are using the opportunity to garnish that relief money.

When Congress passed the massive CARES Act last month, it didn’t include anything protecting that money from debt collectors.

“I think it’s a significant oversight in the legislative process,” said Michael Sury, Economist at UT’s McCombs School of Business.

That’s why the Texas Supreme Court issued an order earlier this month preventing garnishments, or court orders to seize money because of debt, until after May 7.

But before the state’s highest court issued that order, some debtors who received their stimulus checks early found the money was frozen or even deducted from the bank account altogether.

Sury says existing debt like credit card bills and payday loans are often the culprit for collectors to swoop in.

“In some cases they’re actually not notified,” he said, referring to debtors.

It’s already a challenging time to be in debt, and Sury says trying to get that money back from collectors is hit-or-miss.

But he says there’s likely to be at least one more round of stimulus payments on the way, and if the Texas Supreme Court doesn’t extend its order, debtors could be again vulnerable.

Others have told our investigative team the stimulus rollout is slow, and they haven’t even gotten their money yet.

For these reasons, Sury recommends that debtors bypass their banks entirely and opt for a physical stimulus check. He says debtors who already have their relief in the bank would be wise to pull it out.

“I think many [collectors] in the community feel it’s poor form to chase debtors during a pandemic, but there are always a few that just don’t have any scruples,” said Sury.

The Texas Supreme Court has not indicated whether it will the current order preventing garnishments.

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