Can Tax Returns Be Garnished in Texas?

 Posted on February 06, 2025 in Income Taxes

Receiving a tax refund can provide badly needed money, especially for those struggling with debt. However, during tax season, many people worry that creditors or the government will seize their refund before they ever see it. Texas has strong protections against wage and bank garnishments, but tax refunds are treated differently under both state and federal laws.

 Understanding when and how a tax refund can be taken is important, not only for your peace of mind but so that you can devise a strategy to protect your money. A Texas bankruptcy lawyer can help you explore legal options to protect your income and work toward a fresh financial start.

Can Collectors Take My Tax Refund?

Texas law protects many types of income from garnishment by private creditors, including wages, Social Security benefits, and retirement income. However, tax refunds do not receive the same level of protection.

When Creditors Cannot Take Your Tax Refund

Most private creditors, such as credit card companies, medical debt collectors, and payday lenders, cannot directly seize your federal or state tax refund. Texas law generally prohibits wage garnishment for consumer debts, and there is no process that allows these creditors to intercept a tax refund before it reaches your bank account.

 However, once the refund is deposited into your bank account, it may no longer be protected. If a creditor has obtained a court judgment against you, they can try to freeze or levy your bank account. At that point, any money — including your tax refund — could be at risk.

When Creditors Can Take Your Tax Refund

A tax refund may be subject to collection efforts if:

• A creditor has a court judgment against you and freezes your bank account.
• You owe money to the IRS or another federal agency
• You owe child support
• You have debts not protected under Texas law, such as out-of-state judgments.

Can the Government Garnish My Tax Refund?

Certain government agencies can take your tax refund to pay specific types of debt. This process is known as a tax refund offset and is handled through the Treasury Offset Program (TOP) at the federal level.

 Government agencies can garnish your refund for:

• Unpaid federal student loans – Defaulted federal student loans can result in tax refund garnishment. However, Texas laws do not allow private student loan lenders to garnish wages or seize tax refunds.
• Unpaid federal income taxes – If you owe back taxes to the IRS, your refund can be applied toward your tax debt.
• Unpaid child support – The federal government can intercept tax refunds for unpaid child support. Texas law also allows state agencies to collect past-due child support through tax refund offsets.
• Unpaid spousal support (alimony) – If a Texas court has ordered you to pay spousal support, the government may seize your tax refund if payments are overdue.
• Other federal debts – Certain federal debts, such as overpaid Social Security or VA benefits, can result in refund garnishment.

Can a Bankruptcy Filing Protect My Tax Refund?

Bankruptcy can provide relief for people struggling with overwhelming debt, but its impact on a tax refund depends on the type of bankruptcy filed.

Chapter 7 Bankruptcy and Tax Refunds

In a Chapter 7 bankruptcy, tax refunds are considered part of your bankruptcy estate. This means they may be used to pay creditors unless they are protected by an exemption. In Texas, bankruptcy exemptions allow you to protect certain assets, but tax refunds are not automatically included.

 If you are expecting a large tax refund, a bankruptcy attorney may advise delaying your bankruptcy filing until after the refund is received and spent on necessary expenses, such as rent or mortgage payments, utility bills, food, household necessities, or medical expenses. Careful planning can help you avoid losing your refund during bankruptcy.

Chapter 13 Bankruptcy and Tax Refunds

In a Chapter 13 bankruptcy, tax refunds are often used to pay creditors as part of your repayment plan. However, courts in Texas sometimes allow debtors to keep their refunds if they can prove the money is needed for essential expenses, especially if you are in a "100% plan." A bankruptcy lawyer can help you develop a strategy to protect as much of your refund as possible while still benefiting from the debt relief bankruptcy provides.

How Can I Protect My Tax Refund From Garnishment?

While private creditors in Texas generally cannot take a tax refund before it reaches your bank account, the best way to protect your refund depends on your specific situation. Here are some steps you can take:

Pay Any Government Debts 

If you owe child support, student loans, or back taxes, paying these debts may prevent refund garnishment.

Set Up a Payment Plan

If you can set up a payment plan with your creditors, you may be able to stop collection efforts that can eventually lead to a creditor freezing your account.

Use Your Refund Wisely

Paying for essential living expenses before creditors can freeze your bank account may help prevent loss of funds.

Consider Bankruptcy

Filing for bankruptcy may help protect your income and assets while eliminating eligible debts.

What Should I Do If My Refund Has Already Been Garnished?

If your tax refund has been taken, you may still have legal options. A lawyer can help determine whether the garnishment was legal and whether any action can be taken to recover the funds. In some cases, filing an appeal or requesting hardship relief may result in a refund being returned.

 If your refund was seized by a private creditor due to a bank account levy, a lawyer can review whether exemptions were improperly ignored and whether a court challenge is possible.

Get Help Protecting Your Tax Refund from a New Braunfels, TX Bankruptcy Lawyer

Dealing with financial stress is difficult, but knowing your rights can help. If you are concerned about tax refund garnishment or struggling with debt, speaking with a San Antonio, TX bankruptcy lawyer can provide clarity and guidance.

 At Law Offices of Chance M. McGhee, we offer a free consultation to discuss your financial situation and explore your legal options. Call 210-342-3400 today to learn how to protect your tax refund and take control of your financial future.