If you are reading this article you are probably considering filing bankruptcy. You are probably wondering “can I keep my Tax refund if I file bankruptcy.” Unfortunately, this question is not a simple black and white answer. In order to determine if you can keep your tax return money a bankruptcy attorney will have to assess your particular situation.
I am Getting a Tax Refund How Will This Impact My Bankruptcy?
If you are considering filing a chapter 7 bankruptcy and you are expecting to get a tax refund the best thing to do is tell your bankruptcy attorney when you meet with them. There are several factors that will determine whether or not you can keep your tax refund. Some of these factors include, when you file your bankruptcy petition and whether you have exemptions that will cover the tax refund.
How Do I Know If My Tax Refund is Exempt?
The first rule of thumb to whether you can keep your tax refund if you file for bankruptcy is that any income earned after the filing is yours. On the other hand, any tax refund that is based on income you earned prior to the filing would end up being part of your bankruptcy estate in a Chapter 7. This means that whether you file your bankruptcy petition before or after you get your refund won’t matter because in either situation the tax refund will be part of your bankruptcy estate. Moreover, if you filed bankruptcy the prior year and are wondering whether your tax refund is exempt for this year it usually is and you can keep the full refund.
If you want to file bankruptcy but are worried that you will lose your tax refund if you file then there are some things you can do to protect it. First, you can adjust your withholding so that your refund amount will be minimal. Next, if you have already been given the tax return money you can SPEND IT! But don’t just spend it frivolously. You can spend it on your necessary expenses this means back rent, mortgage, food, clothing, medical care etc. This does not entitle you to go out and buy some luxury item.
What Can I Do To Ensure The Bankruptcy Trustee Doesn’t Take My Tax Refund
Depending on your situation you may be entitled to an exemption for your tax refund. This means that even though you have the money sitting in the bank then you can claim it as exempt property and the bankruptcy trustee will not be able to touch it. When you file a chapter 7 all of your assets become part of your bankruptcy estate. The trustee can use your assets to pay creditors. However, the bankruptcy law allows certain property exemptions which means you can still keep certain assets and file for bankruptcy. This is why you see many people who file bankruptcy keep their cars, houses, and money.
My advice is to speak with an experienced bankruptcy attorney that can review your situation and decide whether you can keep your tax return money if you file bankruptcy. An experienced bankruptcy attorney can evaluate your situation and decide what the best option is for you. Karra L. Kingston Esq. is a bankruptcy attorney serving both New York and New Jersey. She has helped many people get out of debt and start their lives over. If you are considering filing bankruptcy visit her website or call today for a free bankruptcy consultation. Karra also speaks Spanish fluently and is able to help.