How You May Be Able to Protect Your Tax Refund during Bankruptcy

When a person is facing debt substantial enough that they are considering filing for bankruptcy as a way to get a fresh financial start, every asset and amount of money that he or she has is important and can make a huge difference in his or her life. Thus, the tax refund money that a person may receive after filing their taxes can be extremely important or even be the difference between being able to afford basic living necessities, such as food and housing. However, when a person files for bankruptcy, particularly Chapter 7 bankruptcy, any assets and sums of money they have are considered part of the bankruptcy estate, meaning that they can be used to pay off some of their bills and loans. As such, any person in this situation may be very anxious about their ability to keep the money they receive as their tax refund.

Although tax refund money is typically considered part of a debtor’s estate that is eligible to be liquidated or used to pay off debts, this does not mean that a person in this situation is without options for keeping their tax refund money. In order to do this though, a person must be careful and should consider the following possible options:

  • Spend the tax refund money prior to filing for bankruptcy. This is a touchy issue, as doing this can be seen as fraud or the objects purchased with the money considered part of the bankruptcy estate. As such, if you choose to delay your bankruptcy filing, you should discuss the particulars with a bankruptcy lawyer and make sure to spend any tax refund money on essentials, such as food and bills.
  • Claim certain bankruptcy exemptions. When filling for Chapter 7 bankruptcy, a person is allowed to exempt certain assets and funds from being used to pay off debts. These exemptions are unique to each state’s regulations, so it can differ from state to state; however, most of the time a debtor has the option of using a wildcard exemption. This exemption allows a person to exempt any property or assets up to a certain amount.

Keeping your tax refund money is difficult, but not impossible. However, with legal support it may be easier for you to find a way to keep this much-needed money.

One Response to “How You May Be Able to Protect Your Tax Refund during Bankruptcy”

  1. Ryan Ruehle says:

    Great information. I never thought I’d be able to keep my refund after bankruptcy.

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