Your Tax Refund and Bankruptcy

Tax Refund and Bankruptcy? Here’s How to Keep Your Money

It comes up every tax season. You’re looking forward to receiving a big tax refund check, and you’re also working hard to get your bankruptcy case filed. So, what happens to your tax refund in a bankruptcy case?

If you have NOT received your tax refund on the date of filing, the trustee will be entitled to the tax refund when you receive it unless your attorney can help you exempt the money to be refunded. This is just one of the many reasons that you should use an established and experienced bankruptcy attorney when you file for bankruptcy protection.

Want to Keep Your Refund? Spend it.

Your refund can generally be used for a variety of expenses, including most of your ordinary household expenses, like:

• Use your tax refund to pay your bankruptcy attorney for the fees and costs of your case.
• Rent
• Mortgage payments
• HOA dues
• Food
• Utilities
• Clothing
• Educational expenses
• Medical and dental expenses
• Insurance
• Home maintenance and repairs
• Car payment
• Car repairs and maintenance

Expenses that generally aren’t allowed include:

• Luxury goods
• Repayment to a friend or family member
• Expenses paid in advance (for instance, you can’t make multiple rent payments), or
• Repayment of one credit card.

If you file during tax season. Individuals who file bankruptcy during tax season often have to figure out what to do with the tax refund they have just received. You can use any available tax refund or wildcard exemption to protect it. But if your state doesn’t offer these exemptions, or you want to save your wildcard for other assets, consider:

Use an Exemption to Protect the Refund

You might be able to keep your tax return by claiming it as exempt property that the trustee isn’t entitled to use. Most states don’t let you protect much cash or money in a bank account. However, some state exemption systems have generous wildcard exemptions that cover any property of your choice that you could use to cover a tax refund.

Learn more about keeping your refund

As with any significant legal decision, make sure that you consult with a reputable and experienced lawyer to advise you in this matter. The impact of a bankruptcy case filing upon your tax refunds varies widely from state to state. The lawyers at the Bond & Botes Law offices have many years of experience in guiding you through a financial crisis. We’re here to help you, call 1-877-581-3396 for more information about this or any other debt relief matter.