Who Can and Cannot Seize Your Tax Refund?

After filing your taxes, you may be eligible for a tax refund at the end of the year. Your tax refund is determined by the number of people in your household, your income and how much money you paid in federal taxes over the course of the year. In some cases, outstanding debts can cause you to lose your tax refund, but not all creditors have access to federal money. 


Bankruptcy Trustees Can Seize Your Tax Refund

If you filed for Chapter 7 or Chapter 13 bankruptcy, the bankruptcy trustee in your case reserves the right to seize all or a portion of your tax refund to cover repaying your creditors. Bankruptcy doesn’t just provide you with the right to discharge your obligation to outstanding and overdue debts. You’ll be expected to contribute as much money as possible to your creditors before a the court will discharge your case. 


A trustee can intercept a tax refund or require you to turn it over to the court If you fail to turn over your tax refund during the allotted time period, the court may dismiss your bankruptcy case. The amount of your tax refund the bankruptcy trustee can seize depends upon when you file, who you file with and a variety of other factors. Spending your tax refund before you file for bankruptcy protects it from seizure as long as you spend the money on household necessities rather than luxury items. Spend the money on luxury items and the court will expect you to repay your tax refund in full lest your bankruptcy case be dismissed.


The Government Can Seize Your Tax Refund

If you owe a debt to the federal government that’s in default, you’re unlikely to ever see your tax refund. This is because the federal government will intercept your refund and apply it to your outstanding debt for as long as your debt is in default. This is a common practice with student loan debts and IRS debts that go unpaid.


Not only can the government seize your tax refund, it can also withhold other forms of income that are traditionally exempt from garnishment and seizure such as Social Security benefits and retirement pensions. 


A Collection Agency Cannot Seize Your Tax Refund

Collection agencies are private creditors and, as such, cannot seize or intercept tax refunds. This doesn’t stop debt collectors from threatening to do so, however. 


The Fair Debt Collection Practices Act states that its illegal for a debt collector to threaten any action to which it is not legally entitled – this includes threatening to intercept or garnish your tax refund. If you can prove that a collection agency threatening to take your tax refund, you have the right to sue them.


Private Creditors Cannot Seize Your Refund

Like collection agencies, private creditors (credit card companies, hospitals, etc) are not legally permitted to garnish your tax refund. Once your tax refund hits your bank account, however, the money is fair game for a bank account levy. 


Bank account levies aren’t permitted in every state, but if your state allows the practice, a private creditor can sue you, obtain a judgment against you, and use its judgment to seize your tax refund from your checking or savings account after you deposit it. 


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Comments 20 comments

Mark Randall 6 years ago

It is a good idea to try and be proactive when you are in a tax situation like this. No one wants money to be taken out from under them, but if you are not trying to fix the problem then there is a good chance that it will happen. Dealing with tax problems and be very confusing so seeing out professional tax help is another good option.


allen 5 years ago

can the court intercept my refund..


Edward C. profile image

Edward C. 5 years ago from Florida Author

If you are involved in a bankruptcy then yes, the court can intercept your refund. If, however, you are married and file your taxes jointly with a spouse who is not named in the bankruptcy case, your spouse is entitled to half of the refund automatically and the court will not seize her half. Hope this helps.


diannah95 5 years ago

if the total amount in my bank account, which includes my frderal refund, is well below my exemt funds, can a debt collector still seize my refund. he froze my account the day before my refund was deposited.


diannah95 5 years ago

oops spelling errors. don't have on my contac lens... federal and exempt.


Edward C. profile image

Edward C. 5 years ago from Florida Author

Since you say you have exempt funds I am assuming that you live in New York or another state that limits bank account garnishments. If that is the case then no, a debt collector cannot garnish your funds. Typically once the refund hits your bank account its fair game, but if your bank account contains less than the amount exempted in your state the collection agency can seize nothing once the freeze is lifted. Keep in mind that bankruptcy exemptions do not apply.


Mag E 4 years ago

what if the person for whom the tax return is to be seized owees money to someone in a small claims case


christine 4 years ago

if a person owes court fines can they take your federal taxes


rob 4 years ago

ok here's a ? the court system took one of my state tax refunds for unpaid fines are the able to take my federal tax refund to??


Lulu 4 years ago

I do not have any student loans.. But I do owe a school money. Can they take My tax refund?


gee o 4 years ago

no they cant take money from you unless it is a federal loan.


Holly 4 years ago

My husband's Federal income taxes have been garnished since 2005 and he just filed for bankruptcy a week ago. Will they still be able to garnish this if it's included in his bankrupty? --Not student loans or IRS back payment.


Rafael R.Padilla 4 years ago

My father got a ticket in chicago for no vehicle sticker in Oct.2005 A law firm pursued me for the fine money in Oct.2007. I explained that my father passed away Jan.2005 and provided them with a death certificate. They would not accept it as proof. I last lived in Chicago in 1973. The City of chicago just seized my State tax return. It's not right..my middle intial is R and my fathers middle intial is M. Plus the registration and drivers license of my father come back to chicago. I've live in the suburbs for 39 years and my license and car registration reflect South suburb address. What legal action can be taken?


gee t 4 years ago

If you owe a bank money for a loan can they take your income tax refund ?


Clotho profile image

Clotho 4 years ago from Las Cruces, New Mexico

We moved from Oklahoma in 2002, but here in the last two years they have been trying to seize our federal return, saying we never paid taxes in 2001. I worked for the Oklahoma Department of Human Services from January 2001, until November 2001. I was a State of Oklahoma employee, and not only were taxes taken out of my paycheck, but I worked for the state itself!

My husband worked for an oil company, he paid his fair share of taxes as well. Each year Oklahoma takes our refund, then they have to give it back within 24 hours because we live in another state.

Well it looks like they did it again, and I am so tired of it. How do I go about suing them so that they will cease and desist?


sapo1344 4 years ago

can a person collect a tax refund from another person who paid a loan off for them


alioop908 4 years ago

The US Treasury Dept sent my deceased son's tax refund to the Dept. of Education towards owed student loans. I thought your loan died when you died; therefore, when I filed his return why didn't I get the refund.


Johnathondonathon 3 years ago

Can a judge legally order me to pay some of my tax return to a small claims judgement from a previous landlord?


cindy morton 2 years ago

Why would DMV take our state tax refund


porsha 19 months ago

I did a 7 can the irs take my refund

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