Tax season is a great time for creditors that have money judgments against you to reappear and attempt to collect on their judgments. Can creditors garnish your federal (IRS) tax refund? No. A private creditor cannot garnish an IRS refund because Article III, Section 2 of the U.S. Constitution grants sovereign immunity. Simply put, private creditors cannot sue the federal government. "Sue" has been interepreted to include garnishment.
However, if you owe taxes for past years, the past due tax debt can be offset with your refund. Also, once the refund is deposited into your bank account it is open season for the creditors! If a creditor has an active garnishment on your bank account, the creditor can recover the tax refund.
Can creditors garnish your Michigan tax refund? Yes. Michigan state tax refunds can be garnished to satisfy creditor judgments. Similar to the IRS, the Department of Treasury can also offset any taxes you owe for prior years.
If you are aware of any outstanding judgments, please seek the advice of a competent bankruptcy attorney to determine whether filing bankruptcy PRIOR to filing your tax returns will protect your refunds from the reach of creditors.
Vivian Law Firm PLC will gladly review your financial affairs to determine what options you have to protect your tax refunds. Please contact us at (734) 446-0340.