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Has Debt Taken
Over Your Life?

Can private creditors take tax returns?

Individuals who are in debt will sometimes look forward to tax season because they know they will receive refunds when they file. Unscrupulous debt collectors might claim that they are going to have your federal return intercepted or garnished. This isn’t possible in most cases because the Internal Revenue Service doesn’t seize tax refunds to settle private debts.

There is one possible way that the creditor could claim the refund. If the collection agency or creditor places a lien on your bank account, they might be able to deduct money from it when the large deposit from the IRS goes into it.

Another tactic that some collection agencies use is claiming that they are from the IRS. This is illegal to do when it isn’t true. While there are some collection agencies that do work for this government agency, they are few. The ones who do will be able to prove that they have a valid relationship with the agency.

If you have filed for bankruptcy, there is a chance that the trustee might be able to seize your refund. This isn’t possible after the bankruptcy is discharged, so your refunds will then be safe. You might be able to exempt some of your income tax return from a Chapter 7 bankruptcy, but it is likely that some will be taken.

There are only three other times besides bankruptcy when the IRS will seize your refund. If you defaulted on student loans, owe child support or have past tax debts, they can use your refund to pay off these debts.

If you have questions about your case, you need to find out what laws apply. This might help you to determine whether you have a situation that might require the IRS to intercept your return. 

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