As a Chapter 7 attorney, I help a lot of people to get out from under debt so that they can regain control of their life. The ability to file for bankruptcy is paramount to the ability to start building again. Whether you previously lost your job, had unexpected medical bills or family troubles, debt can pile up quickly. While bankruptcy can give you a fresh start, it can be difficult to understand the process. As such, I am asked a lot of questions, some of which involve taxes.
Tax season is here, and while most people have already filed their taxes, things like a tax refund becomes an issue to be sorted through. After all, when filing for bankruptcy, all of your assets are potentially up for grabs by the bankruptcy trustee. As an attorney, I can help you to identify what pieces of property or what assets are exempt from inclusion. You can continue to keep ownership of things that are exempt, without needing to buy them outright.
Can I keep my tax refund in a bankruptcy?
As a Chapter 7 attorney, I am regularly asked this question, and the answer is, it depends. When you file for bankruptcy, all of the assets you have prior to filing are subject to the bankruptcy and can be used by the trustee to help pay unsecured debts. While we can help to get an exemption for some of your assets, in general, if you have an asset it can be tapped. Even though taxes were taken out of your check on a bi-weekly basis, that refund could become an asset that the trustee will use. Whether or not they do, typically depends on timing.
Everything that you earn, make, or receive after filing for bankruptcy are assets that you can keep. This prevents creditors from coming after you in the future, asking for more money or for another asset to be sold. Since tax returns can take a while to process, this could create a situation where the trustee wants to include it. For example, if you were to file for bankruptcy after filing your taxes, but before receiving your refund, they could ask about it and include it in your assets. If, however, you have not yet filed your taxes, they would be unlikely to seek inclusion of your refund or at least all of it. For example, if you file for bankruptcy in the middle of the year, any refunds you were due from money paid to the IRS prior to filing could be used by the trustee. Money that you paid in after filing bankruptcy would technically be yours. In this way, your tax refund could be split, or the trustee may not seek to include it at all. In the years following filing for bankruptcy, any money that you pay to the IRS and subsequent refund would be yours entirely.
If you need further clarification, feel free to call the office and speak with a Chapter 7 attorney today.
