Can a Debt Collector Take My State Refund?

Debt collectors have a number of avenues to get money from debtors. Among these are wage garnishment and bank account seizure. In both of these instances, money is taken from an individual until the debt is paid off. While these debt collection actions can be used to seize a number of funds, garnishment cannot be used to take a person's state tax refund, although it can be seized from a bank account.

Garnishment

In order to pursue an income garnishment or a bank account freezing, a creditor must convince a judge to issue an order. This can only be done after the creditor has won a lawsuit against the debtor and awarded damages. However, garnishments cannot be done in most states on people's state income tax refunds, as the state will not honor them.

Bank Account Seizure

Although state tax refunds cannot be collected in the form of garnishment, a debt collection agency may be able to seize the money once it's placed into a bank account. Unlike certain kinds of government benefits, such as Social Security, state tax refunds do not enjoy unlimited protection from seizure by private creditors. This form of income can be frozen after being deposited and then, with the permission of a judge, extracted.

Michigan

The only exception to the rule regarding to garnishment of state income tax refunds is Michigan. In Michigan, a creditor may apply to the state to have an individual's income tax refund garnished for an unpaid debt. The state will then give the debtor several weeks to respond to this request. After the debtor gets a chance to respond, the Michigan state treasurer will issue a ruling on whether the money can be garnished.

Government Debts

The rules that limit the power of private creditors to garnishee tax returns do not apply to state government agencies. If a person owes money to a state government agency, particularly a tax collecting agency, the agency may be allowed to intercept the person's tax return and use it to pay off the unpaid debt. The person may or may not be allowed to appeal this seizure, depending on state law.