By: Robert J. Nahoum
THE PROBLEM
You have heard the good news that the federal government is going to help working people survive the Corona-Economy by providing stimulus checks in the sum of $1,200 to adults with annual incomes up to $75,000[1], plus an additional $500 per child. This money is desperately needed to help pay rent and other bills. However, you have an old debt collection judgment against you. Now the debt collector now knows that you are about to get at least $1,200 transferred into your bank account.
Is your coronavirus stimulus check safe from levy? The answer, for the time being, seems to be an uncomfortable – maybe.
THE RULES
The quickest way for a debt collector to collect on a debt collection judgment in New York is with a frozen or “restrained†bank account. Often, a consumer doesn’t even know he or she has been sued in a debt collection lawsuit until a check bounces or the ATM won’t dispense any money due to a frozen account.
When a consumer’s bank account is frozen, to account for interest, the bank freezes twice as much as the judgment amount. To add insult to injury, the bank will almost always charge the consumer some kind of penalty or administrative fee for restraining the account, usually around $100.00.
STIMULUS CHECKS ARE NOT EXPRESSLY PROTECTED FROM LEVY
The law that authorized the stimulus money, called Coronavirus Aid, Relief, and Economic Security (“CARESâ€) Act, does not directly address the question of whether stimulus money is exempt from levy. Advocacy groups lobbied for protection and, in fact, the House version of the bill did have some protections. However, those protections did not make it into the final version of the bill. For this reason, we must conclude that there are not explicit protections in the CARES Act.
If there are no explicit protections for stimulus money from levy in the CARES Act, are there other protections under state law?
IF NOT EXPRESSLY PROTECTED ARE THERE OTHER PROTECTIONS?
The New York Exempt Income Protection Act
The New York Exempt Income Protection Act (“EIPAâ€) limits the ability of judgment creditors to freeze a consumer’s exempt assets. Exempt assets include
- social security;
- pensions;
- public assistance;
- workers compensation;
- unemployment insurance;
- child support, and spousal support or maintenance;
- 90 percent of earnings deposited into a consumers’ bank account within 60 days prior to the date the bank receives the restraining notice.
To make certain that none of these exemptions are overlooked, the EIPA precludes certain funds from being frozen including:
- the first $2,832 – $3,600[2] in a consumer’s bank which are “reasonably identifiable†as “statutorily exempt†AND that were made electronically or by direct deposit during the 60-day period prior to service of a restraining notice; or
- where deposits are not made by direct deposit, the first $1,920 of such deposit.
WHAT DOES THIS MEAN FOR YOU?
At this moment, it is unclear whether EIPA will protect stimulus checks. If EIPA does apply, is the money protected because it is an exempt “public assistanceâ€, income, or some other category of exemption?
If the stimulus money is considered income, is it fully protect? The answer is – it depends.
Whether or not corona stimulus checks in New York will be protected from levy by judgment creditors depends on two variables:
- How the money was deposited into your account; and
- How much stimulus money you get.
How You Get Your Stimulus Check
- If you have already filed a 2018 or 2019 tax return, and you’ve provided bank information for direct deposit of your tax return, the Internal Revenue Service will directly deposit your stimulus check into that account.
- If the IRS does not have you bank information, the IRS will mail your stimulus check to the home address on file.
How Much Stimulus Money You Get
- As mentioned above, under EIPA, the first $2,832 – $3,600 directly deposited into a bank account is exempt from levy. So, if your stimulus check is directly deposited into your account and there is a zero balance at the time, the full $2,832 – $3,600 of exemption is available to you.
- Under EIPA, the first $1,920 not directly deposited into a bank account is exempt from levy. So, if your stimulus check is not directly deposited into your account and there is a zero balance at the time, only $1,920 of the stimulus money is exempt.
- If you already have money in your bank account at the time the stimulus check is deposited, all sums in excess of the applicable exemption amounts are vulnerable to levy.
WHAT YOU SHOULD DO?
So what do you do if your stimulus check is restrained by a judgment creditor?
The EIPA contains detailed procedures for releasing frozen accounts. If any funds are restrained, the account holder should receive a notice and an exemption claim form, mailed by the bank. The accountholder may complete the form within 20 days identifying which exemptions apply and mail it back to the judgment creditor’s attorney and the bank. This claim of objection triggers an obligation in the judgment creditor to bring a motion before the court challenging the claim of exemption.
At the moment, civil court in the State of New York are ostensibly closed except for a small list of “essential†matters. Is a motion challenging a claim of exemption “essential†– this remains to be seen.
Obviously, these issues are unfolding moment-by-moment. As these questions begin to be answered, consumers must be vigilant in self-advocacy and protecting their consumer rights. Opportunity for debt collection abuses abound as the debt collectors landscape changes.
If a debt collector crosses the line into abusive conduct, you may have a claim under federal debt collection laws known as the Fair Debt Collection Practices Act (FDCPA). The FDCPA is a federal law that regulates the collection of consumer debts. It precludes third party debt collectors from using false, misleading, deceptive and harassing debt collection tactics.
If a judgment buyer violates the FDCPA, you can sue for statutory damages up to $1,000.00 plus actual damages (like pain and suffering) and your attorney’s fees. In FDCPA cases, good consumer lawyers don’t charge their clients a penny out of pocket.
The Law Offices of Robert J. Nahoum, P.C. routinely represents consumers who have learned that a bank account has been frozen. We go to the courthouse and file an “order to show cause†to have restrained bank account released and asserting the consumer’s right to the clam of exemption have the judgment vacated.
If you need help settling or defending a debt collection lawsuit, stopping harassing debt collectors or suing a debt collector, contact us today to see what we can do for you.
The Law Offices of Robert J. Nahoum, P.C
(845) 232-0202
info@nahoumlaw.com
[1] Reduced checks will go out to individuals making up to $99,000 a year (the payment amount falls by $5 for every $100 in income above $75,000).
[2] $3,600 in New York City; $3,120 in Nassau, Suffolk and Westchester Counties; and $2,832 in all other parts of the state.