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Government Can Apply Tax Refund to Bankrupt Individuals’ Debt

April 7, 2021, 5:12 PM

The federal government can seize a $6,000 tax refund to a bankrupt couple who owe a debt to the Department of Housing and Urban Development, the Fourth Circuit ruled.

The couple, Larry and Jessica Ann Wood, argued that their Chapter 7 case bans the U.S. Treasury from taking their tax refund. Section 522 of the bankruptcy code exempts certain debtor property from becoming part of the bankruptcy estate and thus subject to distribution to creditors.

The federal government’s right to offset a mutual debt, rooted in both statutory and common law, supersedes the bankruptcy exemption, the U.S. Court of Appeals...

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