Tax Time Q&A: Can the IRS Seize My Tax Refund to Apply Toward My Student Loan Debt?

Early February is the time of year when Punxatawney Phil sees his shadow, men panic about what to buy their betrothed for Valentine’s Day, and the go-getters get their tax returns done so they can get their refund back as soon as possible However, some taxpayers are discovering the refund they thought was coming has instead has been seized to pay their student loan debt.

What?! Why?!

If your federal student loans are in default (which, by definition, means you are delinquent by 270 days or more), the Department of Education can take your tax refund using the Treasury Offset Program. This program authorizes federal payments, such as tax refunds or Social Security income, to be intercepted in whole or in part to pay debts owed to other federal agencies.
What You Can Do if Your Refund Was Seized.

Under federal law, if you have student loans in default you will be notified in advance that you are at risk of having any potential tax refunds seized and applied to your oldest student loan or loans. The notice you receive will have information for you to review your loans and how you may avoid an offset.
If your refund is taken, you can request a hearing. If it was seized in error, the money may be refunded. However, claiming you did not receive proper notice is insufficient. In order to reverse the seizure would require that you prove your student loan was not in default to begin with.
If you ARE in default then you will not have a good case to recover the funds. Your attention will need to turn toward getting those loans out of default. There are many payment options available and, perhaps, an income-based repayment plan would benefit your budget. In some cases, income-based plans can be set as low as $0 per month. If your circumstances are such that you will never be able to repay all of your student loans, it may be possible to discharge them in a bankruptcy case if you can prove an “undue hardship.” The bar is set very high to determine if you may qualify for undue hardship, but consulting with an experienced bankruptcy attorney at Pollak, Hicks & Alhejaj can help you determine if this option is available to you.
We encourage you to seek help before it is too late. If you are expecting a large tax refund and it is taken by the government, chances are you will find yourself dealing with high stress, anxiety, even panic. Student loan default will not only disrupt your budget, but it will harm your credit and cost you hundreds and thousands of dollars of extra debt over your lifetime. Call us for a free consultation to see what debt relief options may be right for you.

© Wesley Bain, Attorney at Law

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