Akilah McCadney, a single mother of three in St. Louis, learned earlier this year that her tax refund would be seized by the government for her student loans. Thanks to her child and earned income tax credits, she was expecting more than $8,000.
With that money, she planned to pay off her car, replace her children’s old mattresses and send them to summer camp. “I definitely need it,” McCadney, 32, said. She has around $18,000 in student loans.
She reached out to Stanley Tate, a student loan lawyer, for help. Tate explained that she was unlikely to get the government to return her refund, since she was not at risk of foreclosure or eviction.
Desperate to still get her refund, McCadney filed for bankruptcy since the process temporarily suspends Treasury Department offsets. She received her refund after a month.
“It felt good,” she said, although she’s aware of the consequences. “When you file for bankruptcy, it’s on your credit for seven years.”
Seizing tax credits and refunds from low-income people, Yu said, is not financially sound public policy.
“If the government wants its money, this is not the best way to make that happen,” she said. “Taking this money prevents borrowers from being able to go back to work and make money to pay off their loans.”
Indeed, Patterson said she can’t return to work — she’s a writer and performer, until she finds a permanent place to live.
“The last month, we didn’t have anywhere to even sleep,” Patterson said. “Safety and trying to keep us OK has been the only thing on my plate.”