Bankruptcy and Your Tax Return

How Bankruptcy Can Affect a Tax Return

Receiving an income tax return can feel great and help you get caught up on debts you’ve fallen behind on. Despite having the option of “breaking even” and not paying as much in payroll taxes throughout the year, some people enjoy receiving a refund check.

Unfortunately, the joy of anticipating a refund can turn to horror quickly if a debt collector attaches your refund and you get less than what you anticipated. Tax refunds can be garnished by private creditors, the IRS, and other government entities.

What do you need to know about the attachment of your tax refund?

IRS Gets First Dibs

The IRS issues your tax refund and it’s easy for them to keep hold of it or alter it if you owe them money. Any time you have unpaid federal taxes due, your current refund will be put toward that balance. The good news is this rarely comes as a surprise when filing your return.

Other Government Entities

The next in line to attach your tax refund is the Treasury Offset Program. This is the government program that collects outstanding balances owed to state and federal governments, as well as courts, regulatory agencies, and other government entities. This includes any money you owe in past-due child support, delinquent or defaulted student loans, fines, and penalties.

Additionally, if you’ve received an overpayment of any benefits the balance will be taken from your tax refund. For instance, if you were overpaid unemployment, Social Security, or SNAP benefits, your return can be attached.

Again, this should come as no surprise if it affects your tax refund. Debtors must be notified and provided with due process before their tax refund can be attached.

To learn more about the Treasury Offset Program, check out this information from the US Department of Treasury.

Both federal and state governments have the ability to attach your refund. This means if you have unpaid state taxes, property taxes, or fines, your state’s government can take what they are owed out of your tax refund.

Bright Side of a Garnished Tax Refund

Though it might not seem like it when you’re expecting a sizable chunk of change from the IRS, having your refund attached or garnished can be a good thing. For many people, their annual refund is a few thousand dollars, which can put a significant dent in a debt you owe. Even if the refund isn’t enough to pay it off, it can keep it under control and make it possible to pay it off in the near future.

There’s little you can do to prevent an attachment of your refund, but dealing with the situation can serve as a wakeup call. If you’ve been putting off facing your debt, now is a great time to find out what you can do to improve your situation.

Maybe you were anticipating a refund check and had planned to put it toward credit card debt. Maybe you wanted to use it to catch up on past-due mortgage payments or deal with an expense that was unexpected. Finding out you aren’t receiving what you thought you were owed can feel like a kick in the stomach, but maybe it’s just what you need to pursue an avenue that is truly going to help you with your debt.

If you’d like to know more about the actions debt collectors can take to get payment from you or you want to know what you can do to improve your financial situation, we can help. Contact the Law Office of Robert M. Geller at (813) 254-5696 to schedule a free consultation to discuss your situation.