It’s tax season and millions of Americans dream all year of how they are going to spend their refunds. With tax refunds becoming more substantial over the years due to certain exemptions that can be claimed, many people plan on using their refunds from year to year to catch up on delinquent debts, pay medical expenses, make repairs to homes or cars, or even use the funds to take a vacation. The mindset for most Americans receiving a tax refund is to spend it rather than save it, because many people have been planning for months to receive the refund within a few weeks of filing the return.
Student Loans and Tax Refunds
But, what a lot of people don’t know is that if you owe student loans and those loans are in default…guess what? You WON’T be getting your refund!!! When I meet with someone who owes student loans, one of my first questions, especially during tax season, is: What is the status of your student loans, due now/paying, deferred, or in default? If the response is that the loans are in default, my next question is: Have you filed your tax return yet? If the response is yes, I may have to be the bearer of ill tidings: You will likely NOT receive your refund. There is an extremely good chance that if student loans are in default, the IRS has been notified. So, if you were going to receive a tax refund in the amount of say….$8,500.00 (which is not unusual), the entire amount may be offset by the student loan collector….and there is NO getting it back once it’s offset.
You Can “Save” the Tax Refund If You Haven’t Filed Yet
If, in our meeting, the client responds that no tax return has been filed, that’s actually great news if the student loans are in default! We have an opportunity to “save” the tax refund. It is at this juncture that we can open the discussion about filing a chapter 13 repayment plan to work on paying something back on the student loans and create the umbrella of protection to allow tax refunds to be received by the client in the future.
In nearly 30 years of practicing law, I have rarely met clients that were aware that tax refunds will be seized in the event if student loans are in default. It is a secret that is not generally communicated by the student loan lender or any collector of the loans. Most assume that if you do not OWE taxes, you will receive your refund. That is definitely not the truth and what you don’t know can certainly hurt you.
Our experienced attorneys are prepared to give you sound legal advice regarding student loans and your options for a possible repayment of those loans through a chapter 13 case. Filing a chapter 13 case can be one of the best strategies for, not only repayment of student loans, but also protection from losing your future tax refunds.