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
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
- 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.