As a result of the CARES Act, many businesses have received funds through the Paycheck Protection Program. As businesses continue to struggle as a result of COVID-19, many owners may be wondering if creditors can garnish their Paycheck Protection Program funds.
Laws clearly indicate an exemption to garnishment for individual stimulus checks offered by the CARES Act. However, the answer is less clear when it comes to whether businesses’ Paycheck Protection Program funds can be garnished.
What can Paycheck Protection Program funds be used for?
Knowing what the funds can be used for is important for understanding whether or not a creditor can garnish them. The funds offered by the Paycheck Protection Program are intended to help businesses keep all of their employees on the payroll. In fact, the SBA will forgive Paycheck Protection Program loans for all businesses that keep all of their employees on the payroll for eight weeks. However, businesses can also use the funds for rent, mortgage interest, or utilities.
Can creditors garnish Paycheck Protection Program funds?
Unfortunately, there is no simple yes or no answer. Typically, payroll accounts are not exempt from creditor garnishment. Therefore, a judgment against a business debtor can generally result in the judgment creditor freezing a payroll account. Additionally, nothing within the CARES Act explicitly states whether or not Paycheck Protection Program funds are exempt from garnishment. Instead, the Act gives the treasury secretary the authority to issue a ruling on whether these funds are exempt. To date, Treasury Secretary Steven Mnuchin has made no such ruling. Therefore, as of now, states determine whether Paycheck Protection Program funds can be garnished.
What will happen if a creditor tries to garnish my Paycheck Protection Program funds?
While no explicit determination has been made on the federal level, a judgment garnishing your Paycheck Protection Program funds seems unlikely. In New York State in particular, Attorney General Letitia James has been vocal about prosecuting any attempts to garnish individual CARES Act payments as a violation of local, state, and federal law. However, she has not specified whether she would extend this treatment to businesses as well. On the other hand, businesses will likely benefit from the exemption of individual CARES Act funds being exempt from garnishment.
Additionally, garnishing Paycheck Protection Program funds would oppose the purpose of the funds outlined in the CARES Act. The federal government provided these funds to help keep businesses afloat. Therefore, garnishing these funds would have the opposite effect. Additionally, if a creditor ordered a garnishment through a judgment, violating the Paycheck Protection Program obligations would be nearly impossible for the business.
Many businesses are struggling to pay their bills as a result of COVID-19. If your business has past-due debts, you may be worried about a judgment. Consider seeking professional help. At Tayne Law Group, P.C., we have more than 20 years of experience resolving business debt. We can help get your business back on track and put the fear of a judgment out of your mind. And, as a law firm, we can help you navigate the legal side. Contact us today for a free, no-obligation consultation.