20 Jun Why did the IRS take my refund for charged-off debt?

Q. It’s been a few years since my student loans were charged off, and I knew it would stay on my credit report for seven years. But why did the IRS take my refund this year for payments towards a charge off? Is this normal?
— Working but poor

A. It’s not unheard of.

Without seeing your credit report and the details on the loans, it’s hard to know exactly what’s happened.

But as a general rule, it’s important to understand that just because an account has been reported as “charged off” to the credit bureaus, it does not mean that you are no longer liable, said Karra Kingston, a bankruptcy attorney in Union City.

“A charged off account could be an account that was sold off to another debt collection company,” Kingston said. “Charge off means that the account is closed and will no longer be able to be used in the future although the debt still remains due.”

Once you pay the amount that is owed it should be reflected on your credit report as a “paid off – charge off” not just a “charge off,” Kingston said.

But if you haven’t paid the amount, the lender, or a collection agency, is still owed the debt.

“If the student loan company forgave the debt that you owed then there may be tax consequences on the forgiven amount,” she said.

We recommend you contact the IRS to ask specifically why it took your refund.

You can learn more about federal student loan forgiveness here.

Email your questions to .

This story was originally published on June 20, 2019.

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