The Paycheck Protection Program (PPP), which is intended to be a lifeline to keep businesses afloat during the COVID-19 pandemic, has given rise to an incorrect belief among some that the funds obtained through a PPP loan are somehow “off limits” to creditors in situations like post-judgment garnishments and set-offs. Given the emergency relief nature of PPP funds it is perhaps surprising that there are no specific exemptions or carve-outs for the PPP loan funds that exempt them from garnishment or set-offs by judgement creditors. Nonetheless, certain considerations warrant a cautious approach.
Established by the federal government in 2020, the PPP is a nearly $1 trillion business loan program established under the Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act. The PPP allows specified business entities to apply for low-interest private loans to fund their payroll and other specific costs. Of course, what makes these loans especially friendly to business owners is that they may be forgiven if the business keeps its employee counts and employee wages stable. On Jan. 11, 2021, the PPP was reopened for more loans.
Although there are no specific exemptions that prevent creditors from garnishing or setting-off PPP funds, caution is advised when PPP funds might be involved. For example, debtors could try to argue that certain state garnishment or set-off laws are inconsistent with the intended emergency relief uses and goals of PPP funds, and that garnishment or set-off actions by creditors are therefore prohibited or may be even detrimental to the debtor. Future litigation may ultimately decide such potential issues.
Note also that PPP funds—which result from loans to various business entities—are different than situations involving Economic Impact Payments given directly to consumers. As is generally known, the CARES Act initially provided Economic Impact Payments to households, subject to certain income restrictions. The Coronavirus Response and Relief Supplemental Appropriations Act of 2021 subsequently authorized additional payments for qualifying individuals.
Just as with PPP funds, nothing in the CARES Act currently allows any exemption from garnishment or set-off for the Economic Impact Payments. However, the key difference with Economic Impact Payments is that several states have chosen to make garnishment of CARES Act payments from individual consumers exempt. For instance, Illinois’ governor by executive order has suspended the service of a garnishment summons, wage deduction summons or a citation to discover assets on a consumer debtor or consumer garnishee. Also, the New York attorney general proclaimed that she will treat garnishment of CARES Act payments to individuals as a violation of local, state and federal law. Similarly, the governor of California issued an executive order that specifically exempts garnishment for individuals receiving governmental COVID-19 financial assistance.
With all of this in mind, the attorneys at Chuhak & Tecson can recommend best practices and will offer sound advice to help navigate individual circumstances—whether you are dealing with a garnishment or set-off situation that could implicate PPP loans or have other issues that could implicate CARES Act funds.
Client alert authored by Nicholas J. Schuler, Jr. (312 855 4313), Senior Counsel.
This Chuhak & Tecson, P.C. communication is intended only to provide information regarding developments in the law and information of general interest. It is not intended to constitute advice regarding legal problems and should not be relied upon as such.
