There are many consumers who look forward to getting substantial tax refunds each year. These funds may be used as savings, to pay for various expenses, or to pay off existing debt. Consumers who have made plans to spend their tax refunds may be concerned about the ability of existing creditors to garnish those tax refunds.

Generally, private creditors – creditors who are not government creditors – cannot garnish a person’s federal tax refund. Federal tax refund garnishment is usually restricted to garnishment by government agencies that are owed money by the taxpayer. In Michigan, however, a private creditor can have a state tax refund garnished by first petitioning a court for a judgement.

With a judgement in hand, the private creditor can seek a writ of garnishment from the Michigan Department of Treasury to intercept a debtor’s tax refund. The writ can apply to garnish or intercept a debtor’s refund once to settle a debt owed to the judgment creditor. There is a fee for garnishment, and the creditor can make one payment when filing for several garnishments.

When a creditor has initiated a garnishment with the Michigan Department of Treasury, the debtor who owes the debt, and the court that permitted the garnishment, are notified of the impending garnishment. If the debtor does not wish to have his or her tax refund intercepted, he can make arrangements to pay the debt in advance and avoid the garnishment.

The debtor may try to avoid losing the tax refund by negotiating with the creditor to set up a payment plan to pay off the debt gradually instead of all at once. Once the creditor has already received a final judgment on the debt, and has taken steps to start garnishment, the creditor may not be willing to negotiate with the debtor. If the debtor has not been successful in keeping to a payment plan in the past, he is not likely to keep up with a plan unless the debtor’s financial circumstances have changed. The creditor has to consider issues such as how much of a refund a particular debtor may receive in deciding whether or not to allow the debtor to pay off the debt in installments.

In addition to seeking to garnish a debtor’s tax refund, a creditor can seek garnishment of a person’s wages as well as lottery winnings. Creditors can also choose to sell a debt that is considered uncollectible to a collections agency or firm, often for pennies on the dollar. If the debtor has filed for bankruptcy before the creditor has been fully repaid, the creditor may still have an opportunity to collect on the debt if the debt is recorded and secured.

Contact an Experienced Creditor’s Attorney

For more information on how you can best collect a debt with minimal costs to your organization and how to deal with debtor bankruptcy, you need to consult an experienced creditor’s rights attorney. Contact us at Resnick Law, P.C., in Bloomfield Hills and Detroit, Michigan to schedule a consultation.

(image courtesy of Sharon McCutcheon)

Last January, the Detroit Free Press reported that home prices across Southeast Michigan have risen back to 2007 levels. However, for many homeowners, the prices they sold their homes for may still not be as great as what the purchase price was.

Because of that fact, in December 2015 Michigan Governor Rick Snyder signed into law legislation that people who sold their homes on or after June 24, 2011 may be entitled to a refund of the transfer tax that they paid to the State of Michigan — if the state equalized value (SEV) of the home at the time of sale was less than the SEV at the time of purchase. The legislation was in response to a Michigan Supreme Court ruling that expanded refund eligibility in these circumstances.

In other words, if you sold your home for less than what you purchased it for, and it was your principal residence, you likely are now eligible for a refund of the transfer tax you paid to the state.

Of course, there are some catches …

In order to claim the exemption, three conditions must be met at the time of sale:

1. The property must be claimed as the seller’s principal residence.
2. The tax-assessed value of the property (or, state equalized value “SEV”) must be lower in the year of the sale than the year in which the property was purchased.
3. The property must have been sold for a price in which a willing buyer and a willing seller would arrive through arm’s length transactions.

And according to the Michigan Department of Treasury Form 2796 (Application for State Real Estate Transfer Tax [SRETT] Refund), transfer tax refunds can be applied for up to four years and 15 days from the date of sale.

The SRETT can be a significant amount of money, so it shouldn’t be ignored. As an example, if the sales price of your house was $200,000, you could be eligible for a $1,500 refund.

In early July of 2015, the Michigan Supreme Court issued an expansive opinion providing many more Michigan homeowners the right to claim an exemption from the SRETT assessment of $7.50 for every $1,000 in value that was sold.

While the exemption has been available to Michigan homeowners for a number of years, the Supreme Court’s opinion and the subsequent legislation greatly expanded who is eligible for it.

For more information on whether you may entitled to a refund of your transfer tax or other real estate matters, call Resnick Law at 248.642.5400 or click here.