Joseph (Jay) E. Spruill III

Joseph (Jay) E. Spruill III
Of Counsel

Banks are reminded that child tax credit payments made by direct deposit are exempt from creditor process.

In particular, the Virginia law (Code §34-28.3) provides an exemption for any “emergency relief payment” made in accordance with the CARES Act “and any future payments or rebates provided directly to individuals for economic relief or stimulus due to the COVID-19 pandemic.”

The American Rescue Plan Act signed by President Biden in March, under which such child tax credits were authorized, was intended to confront the effects of the pandemic and provide immediate relief to families. As such, the child tax credit payments qualify as “emergency relief payments” for purposes of the Virginia exemption.

Virginia law states emergency relief payments are automatically exempt from the creditor process. Under the law, any financial institution receiving such payments directly from the federal government shall exempt the payments from creditor process if: (i) the payment is marked by the federal government as an “emergency relief payment” or some other identifier that is reasonably sufficient to allow the financial institution to identify the payment as an emergency relief payment, or (ii) the federal government or accountholder gives notice to the financial institution of such payment.

How Should Banks Respond?

In response to any creditor process involving an account into which an emergency relief payment has been made, a financial institution must look back two months preceding the date of receipt of service of the creditor process.

The financial institution must conduct a one-time account review separately for each account in the name of the account holder who is subject to the creditor process without consideration for any other attributes of the account or the creditor process, including:

  • The presence of other funds that may have been commingled with funds from the emergency relief payment
  • The existence of a co-owner on the account
  • The balance in the account, provided it is above $0

After conducting the review, the financial institution shall exempt from the creditor process the lesser of: (i) the amount of all posted emergency relief payments to the account between the beginning date of the lookback period and the end date of such period, or (ii) the balance in the account when the account review is performed.

If a creditor process involves a court return date requiring the financial institution to place a continued hold on an account, as may be the case with a garnishment, and an emergency relief payment is deposited after the one-time review but before the return date, and the account holder notifies the financial institution of such payment, the financial institution must conduct a second account review and exempt the payment from the garnishment or other creditor process after verifying that the deposited funds are exempt.

The exemption applies to any creditor process, including the bank’s right of setoff (i.e., the bank should not set off against child tax credit payments). Importantly, the law relieves a financial institution from any liability or regulatory action if it makes a good faith effort to comply with the requirements above. In order to have the benefit of this protection, a bank would be well-served to have procedures in place to comply.


Contact Jay Spruill.