James: State Bars Seizing of Stimulus Payments to Pay Off Debts

Attorney General Letitia James reminded financial institutions Wednesday that the federal stimulus payments being sent to New York State residents are exempt from debt collection.

The American Rescue Plan Act  issued official guidance to New York state banking institutions, creditors, and debt collectors, making clear that financial relief provided through stimulus payments are exempt from garnishment under New York law. The act authorized the U.S. Department of Treasury to send billions of dollars to Americans struggling financially in the Covid-19 epidemic and economic shutdown but were not designated as exempt from garnishment.

“As New Yorkers continue to face economic instability spurred by the pandemic, it is imperative that we continue to protect their wallets from unscrupulous actors,” James said.  “This official guidance makes clear that banks and debt collectors cannot freeze or seize stimulus funds that are intended for New Yorkers, especially those most in need during this time. My office remains committed to protecting New Yorkers’ rights, and ensuring that any institution that violates this guidance will be held accountable to the fullest extent of the law.”

James’ guidance is based on multiple state and federal consumer protection laws and clarifies that any attempt to garnish stimulus funds from New Yorkers will be treated as a violation of these laws, her office said.

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 collect on debts. The 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.”

This guidance does not apply to any actions taken by the State of New York, including, but not limited to, collecting on past due child support.

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