Protecting Your Federal Tax Refund During Chapter 7 Bankruptcy
Tax time comes around every year, whether you've filed for bankruptcy or not. Once your bankruptcy filing has been approved and your debts discharged, you may experience one of the potential downsides of Chapter 7: the loss of your federal tax refund. However, there is hope that your tax refund will be exempt from Chapter 7 bankruptcy. In fact, depending on the timing of your filing, you may never lose a dime of your federal tax refund.
The Craig Black Law Firm has helped numerous clients hold onto their tax refunds after filing for Chapter 7. If you're considering filing, give me a call at 678-888-1778 or fill out this contact form. I'll personally work with you to ensure your filing meets all your goals.
Chapter 7 Bankruptcy and Federal Tax Refunds
When you file for Chapter 7, the trustee will likely ask if you're due a tax refund. Where you are in the tax return process will determine what happens to your refund:
- If you've already received your refund, the trustee will take an interest in what happened to it. Did you put it toward necessary purchases? If you haven't spent it yet, is it in a non-exempt bank account? In a non-exempt account, the funds could be seized along with the other funds in that account.
- If you haven't received your refund yet, your anticipated refunds can also be exempt and don't have to be deposited into your bank.
- For future tax years, your refund will remain part of your income. Any income earned after Chapter 7 bankruptcy remains yours to keep.
Federal and State Exemptions
When you file, you'll be given the opportunity to exempt some of your assets. If you already have the refund in a bank account, you can ask for that account to be exempted, protecting all the funds in that account.
Take a look at both federal and state exemption options, paying particular attention to any exemptions that might protect cash. You may also be able to take advantage of wildcard exemptions, which let you name specific items you want to protect.
How to Protect Your Refund
If you're nearing tax time when you're considering filing for Chapter 7, it might be worthwhile to wait until you've deposited the check. The IRS may be asked to delay or turn over your tax return if it comes due while your bankruptcy is being processed.
The Craig Black Law Firm can work with you to give you the best chance possible of keeping all your refunds. I can also advise you on how to spend your refund on necessities to avoid later questions from the trustee. If you're considering filing for Chapter 7, call me at 678-888-1778 or complete this confidential contact form, and I'll reach out to you.