Information on Taxes and Tax Refunds from a Chapter 7 Attorney

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.

How a Chapter 7 Attorney Can Help You With the Homestead Act

If you are considering working with a Chapter 7 attorney and filing bankruptcy, you need to consider all of your options and ensure that your family is protected.  This is an excellent way to get a clean slate and start fresh without a mountain of debt.  For families that are simply in over their head, this can be the best way to move forward and get ahead of your bills instead of always feeling that you are behind while struggling to catch up.  This type of bankruptcy provides the option of wiping away your debts instead of making payments.

Since you can wipe away your debts, all of your assets are also on the chopping block.  If you have a lot of equity in your home (s), cars, boats, etc. they can all be claimed and sold as a way to give your creditors some money.  This is especially true on any assets that are collateralized.  For example, if you own a boat with a loan on it, the boat is probably collateral for that loan and the bank has the right to reposes it.  There are, however, ways that you can protect yourself and your family.

The homestead laws have been established to help people that are going through a difficult time financially. They are designed to ensure that people do not end up homeless.  The laws vary from state to state but in California anywhere from $75,000 to $175,000 can be claimed as part of the homestead provisions.  Everyone qualifies for the lower amount of $75,000 with higher amounts allowed incrementally based on income and age. In order to qualify for $175,000, you have to be 65 or older or disabled.  What these laws allow people to do is to claim that dollar amount of equity is protected from creditors in a Chapter 7 or other legal action. As a Chapter 7 attorney, we can ensure that the form is filed correctly. 

When the bankruptcy judge looks at the assets that you have that can be sold to pay debts, they cannot include equity that is covered by the Homestead Act.  In many cases, this prevents a home from being sold because the equity above the protected amount is insignificant and wouldn’t be able to satisfy the outstanding debt.  In order to qualify for this protection, you must complete a homestead declaration and file it in the county where you live.  If it is not filed correctly, your home may not be safe.  As a Chapter 7 attorney, we can help with this process to ensure that you and your family are protected and able to stay in the family home.

As a lawyer, we can also help to protect some of your other assets.  For example, we can make a case that you need to keep a car so that you can drive to and from work every day, important for ensure that your financial problems to do not escalate even further.  During your consultation, we will review your assets and debts than create a strategy for each one.  To file your Chapter 7, give us a call today.