Can Wage Garnishments From Credit Cards Be Taken From My Tax Return?

Credit card companies cannot garnish a debtor's tax refund.

When a credit card holder fails to pay an outstanding balance, the credit card company has multiple options to settle the debt. The company can obtain a court order to seize a debtor’s property, wages, or personal funds. However, a credit card company cannot garnish a debtor’s federal tax refund to settle an outstanding debt.

Private Creditor’s Rights

The Bankrate article "How Wage Garnishment Works" advises that private creditors, such as credit card companies, must obtain a court order to seize payment for a debt. Wage garnishments are the primary method private creditors use to seize payments for outstanding debts. Since a tax refund is not considered income or wages, private creditors do not have the right to seize these funds to settle an outstanding debt. That is, federal benefits, such as a tax refund, are exempt from garnishment from private companies, according to the Federal Trade Commission’s Debt Collection FAQs: A Guide for Consumers article.

Bank Levy

Private creditors are not limited to settling debts via garnishment orders. Creditors can force debtors to settle their outstanding debt via a bank levy. Through a bank levy, creditor’s obtain a court order to seize a debtor’s bank account to settle an outstanding debt. Even though tax refunds are exempt from direct garnishment from private creditors, if a debtor deposits his refund into a bank account, the funds no longer receive the same protection from garnishment. A creditor can obtain a court order to seize the debtor’s tax refund and any other funds in his bank account to settle a garnishment order.

Federal Government Garnishment Rights

While private creditors do not have the right to garnish tax refunds, the federal government has the right to do so. If a debtor has delinquent taxes, child support, alimony or tardy federal student loans, the federal government can garnish all or a portion of his tax refund before he receives a refund check. This is known as a “tax refund offset.” The IRS does not have to obtain a court order or judgment to offset a debtor’s tax refund in an aim to settle delinquent taxes, child support payments and other debts owed to governmental agencies, according to the U.S. Department of Treasury’s Office of the Comptroller of the Currency.

Considerations

While a private creditor cannot garnish a debtor’s tax refund to settle a debt, the borrower should not ignore the debt. The Bankrate article "Creditors Can Garnish Your Bank Accounts" recommends cooperating with a creditor directly to reach a payment agreement to settle the debt and avoid a subsequent bank levy or wage garnishment order.

References

• Federal Trade Commissoin: Debt Collection FAQs-A Guide for Consumers
• U.S. Department of Treasury’s Office of the Comptroller of the Currency: Answers About Garnishment
• Bankrate: Creditors Can Garnish Your Bank Accounts; Justin Harelik; November 2006
• Bankrate: How Garnishment Works; Jenny C. McCune; September 2012