Filing Bankruptcy AND Expecting a Tax Refund? Talk to Us First!

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Are you expecting a tax refund, but you’re worried filing bankruptcy can impact the status of your return? It’s essential to consult a bankruptcy attorney to learn what options you might have.

The reality is filing bankruptcy can affect your eligibility to receive and keep a tax refund. Many factors outlined below can determine whether or not you can retain the money. Find out what circumstances can determine if you can obtain your refund.

How Tax Refunds Are Treated During Bankruptcy Proceedings

When filing for bankruptcy, any potential tax refund is treated as an asset. During your proceedings, a court-appointed trustee may ask you if you are expecting a refund, or if you’ve already received it. It will then be added to your list of assets.

You may be able to retain your refund if you can protect it through a bankruptcy exemption. You will need to work with your bankruptcy attorney to determine if you can apply an exemption to your refund.

Tax Refunds Under Chapter 7 Bankruptcy

If you are filing for Chapter 7 bankruptcy, you can try to protect your tax refund by filing for bankruptcy after you spend your refund. You will need to spend this carefully, though, and use it towards living expenses and not to purchase another asset that you could lose during the bankruptcy proceedings nor pay back debts or give money to friends or relatives. You could also use your refund to pay for your bankruptcy attorney fees.

There are other ways to protect your refund. If you’re worried about losing the money, you could adjust your withholdings (if you catch this early enough in the year to make the adjustment) to get more money back in each paycheck. You could also opt to put more money into your retirement account to avoid getting a refund.

Tax Refunds Under Chapter 13 Bankruptcy

If you’re filing Chapter 13 bankruptcy, your best option to keep your tax refund is to protect it with an exemption. Future tax returns beyond the filing year during a Chapter 13 area are treated in different ways depending on the facts and circumstances of your bankruptcy case. Or, as with Chapter 7 bankruptcy, use it towards living expenses before filing for bankruptcy, for your retirement plan, or towards your legal expenses. If you’re unable to do this, you will likely have to give the money to your creditors to pay off your debts. Your refund can be included as part of your disposable income, meaning it’s included as part of your repayment plan.

If you’re owed a refund, you should notify work with you attorney and determine what options you may have and how the money should be allocated. If you can prove you need the money to pay for living expenses, you might have an option to keep it. Otherwise, the trustee will determine if it will go to your creditors.

Work With a Bankruptcy Attorney

To ensure you are disclosing your tax refund correctly and using it appropriately, it’s essential to work with an experienced bankruptcy attorney. A lawyer will inform you of what options you might have. Your attorney will also help protect your interests and make sure you are following the rules. Don’t let your tax refund jeopardize your Chapter 7 or Chapter 13 bankruptcy proceedings. Work with an experienced bankruptcy attorney to determine the right way to use the money.

Let Us Help You

If you’re filing for bankruptcy and you’re expecting a tax refund, let our lawyers at The Law Offices of Alexzander C.J. Adams, P.C. help. We work for you, the people, and not institutions. Contact us for a free case evaluation, or no-obligation consultation. We are dedicated to helping you overcome this small bump in the road and assisting you to get on with your life.


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