Can I Lose My Stimulus Payment in Bankruptcy?
As of this writing, many Americans have already received their second stimulus check. But for a bankruptcy filer, the biggest question may be how to make sure the stimulus money isn’t taken by creditors or by the bankruptcy court.
Stimulus and Creditors
Unfortunately, there is nothing in the law that makes a stimulus check automatically protected or exempt from creditors. This can be a concern for those who will have the stimulus check automatically deposited into their accounts.
If there is a wage garnishment, or some other ability for a creditor to “reach into” your bank account and take money to pay off a debt, your stimulus money can be taken (note that if you file bankruptcy, all ability for a creditor to take money from your account stops with the automatic stay).
You can possibly avoid this problem by having your check mailed to you and cashing it. You also may be able to avoid the problem by withdrawing the stimulus money as soon as it is deposited. You should only do this, and use stimulus money, for necessities, like food or shelter. Make sure to keep good records of how you spent your stimulus so that you aren’t accused of defrauding any creditors.
Stimulus and Bankruptcy
In bankruptcy, you are left to fit your stimulus money into the bankruptcy exemptions, although there is some language that excludes the money as being considered as income.
Florida only has a $1,000 exemption for miscellaneous items or cash. If you do not have or if you are not claiming the protections of a homestead on your bankruptcy, you can protect up to $4,000, which should be more than enough to protect stimulus money.
It may seem heartless for a bankruptcy trustee to try to take someone’s COVID stimulus money. But trustees get paid, in part, based on a percentage of the assets and funds they recover for creditors. That means that it is in their financial best interest to take whatever they legally can take, so sympathy alone will likely not be enough to avoid a trustee trying to take a debtor’s stimulus payments.
Stimulus money also could cause a problem with the means test. We don’t know if courts will consider stimulus money to be “income” for the purpose of calculating your monthly average income for the six months before you file your case. If it is considered income, it could skew your income high enough that you have a problem filing for Chapter 7 bankruptcy.
However, it is likely that most courts would recognize and agree that the stimulus check is not regular, recurring income, and you would likely be able to file for Chapter 7, if it was just the stimulus money that was pushing your average income too high.