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Can Credit Card Debt Affect Your Tax Refund?

When you calculate your tax refund, you may be wondering if your credit card debt could affect your return and whether you’ll still get your refund check. If you’re concerned about whether you’ll get a refund because of your current debt situation, read on to learn what situations actually affect your refund.

Can My Creditors Take My Tax Refund?

In short, no. Your tax refund is yours in almost all cases.

That said, there are some stipulations and caveats you need to be aware of if you’re worried about your tax refund going to pay your debt payments. Wage garnishments, unpaid credit card debts and debt settlements all have implications and consequences. Here’s what you need to know about your tax refund with respect to these.

How Tax Refund Money & Garnishment Works

While credit card debt doesn’t mean you won’t get a refund, there are garnishment protocols for other kinds of debt or payment delinquency. The government can garnish your tax refund in the case of unpaid state or federal taxes, unpaid federal student loans, or child support. 

Liens on Your Bank Account & Your Tax Refund

Your credit card company or collections agency can’t take your refund outright. If you owe money to a credit card company, they can put a lien on your bank account and seize your funds after they’re deposited. If the amount of debt is huge, they can even put a lien on your home and personal property; a situation that calls for the assistance of an experienced bankruptcy lawyer. Remember that whenever you risk losing your personal property, seeking help is always best. A lawyer could be the best person to pull you out of one such situation.

Stipulations on Debt Settlement & Your Tax Refund

In the past year did you undergo debt settlement on a credit card and pay less than the amount you owed the creditor? If so and the difference was greater than $600, you should have received a 1099-C form. This is because your settlement is then actually considered income by the IRS. This means that you’ll owe taxes on that income to both your state and the federal government. This could affect the amount you get from a tax refund check.

When to Call a Credit Counselor

Certified credit counselors — like those at CreditGUARD — can’t help you with your tax refund, with filing your taxes or addressing your debt to the IRS or federal government. However, speaking to an expert may help you better understand your finances and get control of your budget and debt.