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Can I Keep My Tax Refund If I file for Bankruptcy?

Posted By Albaugh Law Firm || 8-May-2018

If you are thinking about filing for bankruptcy, you are likely wondering what will happen to your tax refund during your case. In this blog, we explain what you can do to keep your tax refund if you are thinking about declaring bankruptcy.

Is My Refund Part of the Bankruptcy Estate?

Yes, your refund is considered a part of your bankruptcy estate. Once your bankruptcy is filed, any of the assets that you own will become a part of the bankruptcy estate, including your tax refund. You will have a trustee appointed to your estate, who will collect your assets and liquidate them to pay the debts you owe to your creditors. In most Chapter 7 cases, the person who filed for bankruptcy doesn’t have enough assets that can be used to pay-off creditors.

Trustees often go after tax refunds because it doesn’t take the same amount of effort that liquidating other assets does. Unlike real estate and other valuable possessions, there isn’t a need to list a tax refund for sale. Instead, the trustee can just cash the refund check and use the money to pay your creditors as they see fit.

If you want to keep your refund, but also need to file for bankruptcy, you might want to try filing your tax return and spending your refund before you declare bankruptcy. However, before you start spending your refund, you should speak with a lawyer about how to keep a detailed record of your purchases. Your attorney can also advise what items and expenses you should spend your refund on.

In general, your tax refund can be used for household expenses, such as:

  • Rent/ Mortgage Payments
  • HOA Dues
  • Utilities
  • Medical & Dental Expenses
  • Education Expenses
  • Car Payment
  • Vehicle Repairs & Maintenance
  • Home Repairs & Maintenance

Be careful with what you spend your tax refund on, using it to repay debts to family, friends, and credit card companies might cause your trustee to object, in which case you will be forced to hand over your refund, even if you have already spent a portion of it.

When you go to file for bankruptcy, you want to have the smallest amount of the refund in your account that you possibly can. If you have a retirement account, you might be able set aside a portion of your tax refund into that account. A skilled attorney can tell you how to use your retirement accounts to manage your tax refund. Unfortunately, if you don’t have your tax refund by the time you file for bankruptcy, the trustee will be entitled to the refund once you finally receive it.

Do you have more questions about protecting your tax refund in bankruptcy? Our team of St. Augustine bankruptcy lawyers can give you the answers you’re looking for. Call (904)-637-1839 to request your free consultation today.

Categories: Bankruptcy