Tax refund garnishments can be a devistating blow to your financial outlook. Tax refunds most likely feel like a yearly bonus; a lump sum of money that you can count on to make special purchases, catch up on past due bills, etc. Losing it to a creditor could be devastating and create other budget issues if that money was earmarked for other purposes.
So how do you protect your tax refund and ensure that cannot be taken by a creditor who is threatening or has taken legal action such as a judgment or garnishment? Read on to understand Michigan garnishment laws as they relate to filing bankruptcy to protect your tax returns and begin the process of resolving your debts.
How Does a State Tax Refund Garnishment Occur?
State tax refunds are subject to garnishment when a creditor serves a writ of garnishment on the State of Michigan Department of Treasury. If an individual has been served with a notice from the State of Michigan that a writ of garnishment has been received, certain actions can be taken through filing for bankruptcy to keep the creditor from receiving the tax refund.
Judicial Lien and Timing for Filing for Bankruptcy in Michigan
Once the writ of garnishment is served on the State of Michigan, it creates a “judicial lien” on the tax refund in favor of the creditor.
- If a bankruptcy is filed within 90 days of the writ of garnishment being served on the State of Michigan, the judicial lien is avoidable and the tax refund will go the individual.
- However, if it has been more than 90 days since the writ was served on the State of Michigan and the individual has filed his/her tax return before the bankruptcy is filed, the creditor is entitled to the tax refund.
Filing of the bankruptcy will cause the creditor to issue a release of the garnishment to the State of Michigan.
Therefore, if it has been more than 90 days since the writ of garnishment was served on the State of Michigan, you should not file the State of Michigan tax return until you have filed the bankruptcy and the creditor has provided a release of writ to the State of Michigan.
In this scenario, the State of Michigan will release the tax refund to the individual upon filing of the tax return.
Call the Michigan Bankruptcy Experts to Understand Your Legal Rights
There may be other timing and fact scenarios that may enable an individual to ensure their tax refund is not garnished. Call us today at 866-261-8282 for a free consultation to understand your debt resolution options. For the past decade, our firm has committed our practice to helping our client’s achieve debt relief, debt consolidation and find credit restoration.
We offer free in-office or phone consultations to review your personal circumstances, analyze your situation and advise you on the best course of action. Call us today at 866-261-8282 to speak to a licensed Michigan attorney. We specialize in bankruptcy law, debt resolution, foreclosure prevention and credit repair. We have offices in Detroit, Southfield, Dearborn, Flint, Ann Arbor, Lansing and Warren, Michigan.