Tax season has officially arrived. Most people look forward to their big refund check. But what happens if you are in the process of filing for bankruptcy? What happens to your refund check? Do you get to keep it? There are many variables when answering this question.
The short answer is probably not. Your tax refund is considered to be part of your bankruptcy estate, which is a culmination of all your property and assets that will be given to a bankruptcy trustee who will then schedule payments to your creditors.
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But there is a chance that you can keep your tax refund or a portion of it. It all depends with when you filed your taxes, when you filed your bankruptcy claim and what chapter of bankruptcy you plan to file.
The best way to ensure that you keep your tax refund is to file your taxes, spend your refund, and then file for bankruptcy. Make sure that you keep a record of exactly how you spent your tax refund. It is recommended that you spend on household needs such as rent, mortgage payments, car payments or medical expenses. Then when you file for bankruptcy make sure you have very little of the refund left in your bank account or none of it all and you will most likely not have to give any of your refund over to the bankruptcy trustee.
This process only works as long as you spend your refund on necessities and not luxury items. Also if you use your refund to pay back a friend or family member or even use it to pay off a credit card you may have to give your entire refund to the trustee.
Another way to keep part of your tax refund is to first file your refund as an asset when you are filing for bankruptcy. Then you can file this asset for exemption under the "wild card" code, which basically states the debtor can exempt up to $1,075 of property. If your tax refund is under this amount, this could be away for you receive your entire refund without having to spend it first.
And the last option you have to ensure that you get some money from your tax refund is to not receive a refund at all or a very small one. Ask a bankruptcy lawyer to look at your W4 from last year and see what deductions you can eliminate. This way you will get more money in your paycheck throughout the year and will receive a much small tax return when you file for taxes.
The relationship between filing for bankruptcy and your tax refund can be confusing. A bankruptcy lawyer can give you bankruptcy advice on whether or not you should file for taxes first or file for bankruptcy first and how you can receive the most from your tax refund.
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