Ambac Financial Group (ABK) is suing the U.S. for attempting to seize $700 million in tax refunds, which it says it needs to reorganize, Reuters reported Tuesday.

The bond insurer, which declared bankruptcy Monday based on losses from the mortgage crisis, says its ability to reorganize will be "jeopardized or destroyed" if the refunds are seized. The company claims it's entitled to keep all of its tax refunds for the five fiscal years until 2008.

Ambac issued its first bankruptcy warning in August, after reporting a $57.6 million second-quarter loss. It said then that it was working with its creditors to come up with a pre-planned bankruptcy, but when the company missed a Nov. 1 interest payment on its debt, it warned that it would have to file for Chapter 11 bankruptcy by the end of the year if it didn't reach an agreement with its debt holders.

Ambac is scheduled to disclose its third-quarter financial results Tuesday afternoon. The company didn't immediately respond to a request for comment from DailyFinance.


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