Unsecured Creditors

• Unsecured creditors, including credit card companies and medical debt collectors, cannot usually win a judgment order to garnish your federal or state tax refund. This is because the court considers these creditors as unsecured, meaning the creditors knew the risks and lack of alternatives to force you to pay your debts when they granted the original loans or lines of credit. The court may grant requests from unsecured creditors to seize your tax refund provided no secured creditor or branch of the state or federal government has a claim against your anticipated refund. Creditors may also have to show why they cannot claim sufficient satisfaction of outstanding debts through wage garnishment.
  
  

Secured Creditors

• A secured creditor, including a mortgage lender or federal student loan holder, may file a lawsuit with a civil court to obtain a judgment order against you and seize your federal or state income tax refund. A mortgage lender may perform this legal action to recoup a deficiency judgment from your foreclosed mortgage while a student loan company will garnish your refund in an attempt to satisfy a portion of your student loan debt. This garnishment can continue until you make arrangements with your creditor to bring your account current.
  
  

Paying Back Taxes

• If you owe the Internal Revenue Service back taxes, the federal tax agency may seize all or a portion of your state or federal tax refund to satisfy this debt. The IRS does not usually need a court order to take your refund and you won't receive a notification until after the garnishment occurs. Contacting the IRS and setting up a monthly payment plan is a smart step in settling your delinquent tax debt and can reduce the likelihood of future tax refund garnishments and other collection practices, including bank account seizure and wage garnishment.
  
  

Fighting Tax Garnishment

• A creditor, excluding the IRS, must file a lawsuit in civil court to obtain a judgment for a debt you owe. It's important you answer in writing the court requests for your attendance at a judgment hearing and you must attend the hearing. This provides you with the best chance to defend yourself against a creditor's request for judgment and forces the creditor to confirm the debt in question is your responsibility. If you don't attend the hearing, the creditor wins the lawsuit without a fight and garnishment may proceed.