Gov. Kim Reynolds last week temporarily prohibited debt collectors and banks from seizing funds from Iowans’ bank accounts and wages during the coronavirus public health emergency.
Reynolds’ order pausing all garnishments, except those related to family support, is in effect until May 27. Before this order, legal advocates were seeing what looked like an uptick in debt collections as coronavirus started to appear in the state and court services were reduced.
This happened to Adunni Noibi, who works at a hospital in Iowa City. She tried to pay her mortgage in mid-March, wasn’t able to transfer funds, and then found out a debt collector had frozen her accounts.
“This was when everything was coming up with [coronavirus], and everyone was out buying groceries, stocking up. We didn’t know what was going to happen,” Noibi said. “I tried to explain this is all the money I have. They didn’t care.”
Noibi, who is also a single mom and a student, said the debt collector told her they would seize her assets for 120 days or until the debt was paid off.
“How can you leave someone out there without the means to provide for their family?” she asked.
Noibi got a court hearing with the help of Iowa Legal Aid, and she said the issue was resolved by the end of March. She said her student loan debt was ultimately forgiven.
Iowa Legal Aid Litigation Director Alex Kornya said garnishments have been an increasing concern as Iowans get stimulus checks from the federal government. And many court dates for hearings to argue against garnishments have been pushed back several weeks because of reduced court services.
Koryna said Reynolds’ “sweeping” order puts a hold on new and existing garnishments. But he said there could be difficulties in implementing this change, because employers and banks have different levels of sophistication.
“It’s important that people who are currently under a continuing garnishment try to contact their bank or employer and let them know that this proclamation has been issued which stops ongoing and new garnishments,” Kornya said. “So that should be enough for most employers and banks to just voluntarily release funds.”
He said if that doesn’t work, debtors may have to go to court.
Reynolds said it is unlikely this order will be extended past May 27.
Federal assistance could be subject to seizure by creditors
After the hold on garnishments expires, it’s not clear if the $1,200 stimulus checks Iowans are receiving from the federal government will be protected under Iowa law.
Public assistance benefits such as cash assistance and unemployment benefits are legally protected from seizure. It’s not clear if the stimulus checks can be categorized as public assistance, and it could take a years-long court case to decide that in Iowa.
According to The Washington Post, the U.S. Treasury Department was reviewing whether it has the authority to protect those $1,200 federal stimulus payments from debt collectors.
Meanwhile, some state attorneys general are saying the payments are protected by existing state law. And the governor of Oregon signed an executive order prohibiting debt collectors from seizing stimulus payments.
Iowa Attorney General Tom Miller’s spokesperson Lynn Hicks said the federal stimulus payments are not clearly protected from garnishment in Iowa.
“Attorney General Miller is concerned about this issue, and we’re working on several fronts,” Hicks said in an email.
Miller signed onto a letter with 24 other state attorneys general asking the U.S. Treasury secretary to make the payments exempt from garnishment.
“During this public health and economic crisis, the states do not believe that the billions of dollars appropriated by Congress to help keep hard-working Americans afloat should be subject to garnishment,” the letter reads.
Hicks said the AG’s office is also working with U.S. Sen. Chuck Grassley and the governor’s office.
Reynolds’ office did not return a request for comment on this issue.