Can You Keep That Tax Refund If You’ve Filed For Bankruptcy
With just a few weeks left before tax filing deadline, it’s important to know whether or not you’ll be able to keep a tax refund if you’ve filed for personal bankruptcy. We’ll talk about it in this issue.
Tax Refunds and Chapter 7 Personal Bankruptcy
If you’ve already received your tax refund and haven’t filed for Chapter 7 personal bankruptcy, your best bet for keeping it is to spend it. After all, your bankruptcy trustee can’t pay your creditors with money or assets you don’t have. The key is to spend the refund on approved expenses, such as:
- Mortgage or rent
- Medical care
- Auto payments and upkeep
If you’ve received the refund after you’ve file for Chapter 7 personal bankruptcy and the refund is calculated on income grossed before your bankruptcy, it’s part of your estate and will be used to pay back your creditors.
Tax Refunds and Chapter 13 Personal Bankruptcy
Things are a bit more clear with Chapter 13 personal bankruptcy rules. Simply put, any tax refund you receive must be turned over to the trustee for payment to your creditors. Your refund is looked upon as disposable income, and any such income that’s not used to pay for necessary expenses is to be used to satisfy creditors. The only way around it is to modify your plan to pay back your creditors. To do this, you’ll need to make a separate modification for each year of your repayment plan. The modification should include (a) which tax refund needs to be excused, (b) the dollar amount of the refund and (c) the reason you need to keep the refund.
Get Disciplined With Your Money; Call The Oswalt Law Group
If you’re tired of dealing with crippling debt, call us here at The Oswalt Law Group for a free consultation. Our number is 602-225-2222