It’s the time of year when so many people plan out what they will do with their tax refund money. Some want to buy a new television, others want to treat the kids to a trip to Disney World, and others plan to avalanche a chunk of debt out of existence.
Credit cards, car notes, and student loans are popular targets for a great big cash smash. However, a monster called the Treasury Department’s Bureau of the Fiscal Service might be reaching out for your refund due to an offset for defaulted student loans.
What It Is and Why You Have One
The Treasury Offset Program is a way for the federal and state governments to collect on delinquent in defaulted debts that are owed to federal and state agencies who submit the debt to the Treasury Department for collection. The debts that they collect are tax debts, child support, overpayments, student loans, and others. The offset program does not collect on defaulted commercial balances such as for credit cards and payday loans. When you file your taxes and have a refund balance owed to you, the program will step in and reduce the refund by the amount owed.
What to Do
First, couples who are married and filing jointly may be entitled to a partial or full refund of only one spouse originated the debt. The “Injured Spouse” allocation form is Form 8379. This is different from the “Innocent Spouse” relief form – Form 8857 – which should be used when only one spouse (or former spouse) should be held responsible for the debt. You should also have a look at your credit reports, and make sure that the debt is actually yours.
Unfortunately, student loan fraud – where family members borrow without the student’s knowledge or consent – is a thing that really exists. Getting loans discharged for student loan fraud and identity theft is one thing but getting a student loan tax offset hardship discharge is another.
Wait. There’s a Student Loan Tax Offset Hardship Discharge?
There is, but it’s not a fast process. It can take as long as nine months to stop a tax offset, so if you are just getting ready to file you might want to finish that up first. You should have a letter advising you of the offset, and you should check the information in that letter against your own records.
If you feel your records are inaccurate or incomplete, request your loan information from the department of education. You can request a review your hearing for incorrect balances, loans that are not in default, the loans are not yours, the debt was discharged or paid, the loan is not enforceable, you’re under an automatic stay from filing bankruptcy, or are in a loan rehab program. You are also entitled to a full discharge if you are totally and permanently disabled.
A student loan tax offset hardship discharge requires some extra effort and has a few conditions attached.
- You must be in a voluntary repayment plan and actively making payments.
- You may not have had a previous hardship refund.
- You must have your treasury notice advising you that your refund payment has been applied to defaulted student loans.
In addition to the above, you must meet one or more of the following criteria.
- Unemployment benefits have been exhausted. Provide a copy of the notice.
- You are currently homeless and do not have a permanent address. You are required to provide a temporary address on the form.
- Your utilities are being disconnected or turned off for nonpayment. This only covers water, power, gas, and sewer service. You will be required to provide proof of disconnection or turn off with a date within three months of the offset notice, and the total amount owed.
- You are facing eviction or have been evicted. Documentation must include the amount owed, a date within three months of the offset date, official paperwork from the landlord, and any papers from the court system.
- You are facing foreclosure or have been foreclosed upon. You must provide the amount owing, a date within three months of the offset, and paperwork from the court system.
In all cases, you must provide copies of documents – not the originals as they will not be returned. Remember, this is a sworn document and you are declaring under penalty of law that you are providing accurate information and true documents. Unless you like the idea of having an additional fine on top of your debt and possibly spending five years in jail, don’t even consider doing this.
“We understand and specialize in debt. We’re not here to judge you, we are here to help you. We are not only a bankruptcy firm but one that is experienced in handling debt in all its forms. You may not need to file for bankruptcy, but we can help you to consolidate and negotiate your debts until you can freely breathe without owing someone else some money,” says Chad Van Horn, founder of Van Horn Law Group.
Understandably, finding yourself in the middle of this mess can be very upsetting. However, you can take it as a sign to get your financial house in order. Gather your banking information, information on all of your debts, records of all your expenses, and your credit reports. Sit down and review everything and then start to figure out a way forward.
There are lots of legitimate resources open and available to you both on and off the Internet that can help you take control of your finances, sort out debt, and plan for the future. Maybe next year or the year after, you can use that tax refund for a cruise or a new home entertainment center.
Chad T. Van Horn, Esq. is a South Florida business leader and founding partner attorney of Van Horn Law Group, P.A. Through a combination of dedicated philanthropy, spirited entrepreneurship and legal expertise, he applies his resources and network to helping people.