When a person runs up a hefty credit card bill and fails to pay it back on time, then the credit card company may take a number of actions to secure payment of the money owed it. Among these is to attempt to garnish an individual's wages or other regular income. However, private creditors, such as credit card companies, are generally not able to freeze a person's income tax refund and confiscate it.
Garnishment
When a debt is garnished, a person's income provider---usually an employer---is approached and ordered to siphon off a percentage of the funds that would normally be provided to the person. Extra-judicial garnishments are illegal: all garnishments must be approved by a civil court judge. To garnish a person's income tax refund, a credit card company would have to provide a state tax agency or the federal Internal Revenue Serve with a garnishment order.
Federal Refunds
The Internal Revenue Service does not allow private creditors to freeze or garnish the payments of tax refunds. Even if a private creditor were able to convince a judge to provide an order of garnishment on the IRS, the agency would not honor it, nor would it be legally required to do so. However, if a debtor owed money to the federal government, particularly taxes to the Internal Revenue Service, then the IRS would likely honor the government's garnishment order and freeze the refund.
State Refunds
Most states do not allow private creditors to seize a person's income tax refund. However, the state of Michigan does allow creditors to do so. In order to successfully seize a person's income tax refund, the creditor must petition the state of Michigan after receiving a judgment in civil court against the debtor. The state will then give the debtor a chance to respond to the petition before issuing a decision on the case.
Bank Account Freezing
Although creditors are generally unable to garnish a person's tax refund before the refund is issued, they are more likely to be able to freeze an individual's bank account. Once a bank account has been frozen, creditors can then petition a judge to have the money owed to them removed from the account. Tax refunds, unlike many payments made by governments to individuals, are not exempt from forcible seizure after the individual has received them.
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