One of the main concerns that clients have when they file bankruptcy is that they will lose their property. Around tax time each year, the fear of losing tax refunds becomes one of the main reasons that people do not want to consider filing bankruptcy. They fear what will happen to their tax refunds after bankruptcy. The truth is that tax refunds after bankruptcy are usually safe provided that the debtor reports everything to his or her attorney prior to filing bankruptcy.
What Happens to Tax Refunds After Bankruptcy?
When you file bankruptcy, you are required to list all of your assets. This includes any tax refunds that may be owed but not yet received. For example, if you file bankruptcy at the end of the year, you have not filed your tax returns for that year. However, if you typically receive a tax refund each year, you can justifiably anticipate receiving a tax refund when you file your tax returns. Therefore, you must report the anticipated tax refunds. If you file prior to the end of the year, the trustee would only be entitled to claim a percentage of your tax refunds after bankruptcy. If you file after the end of the year, the trustee could claim the entire tax refunds after bankruptcy as an asset of the bankruptcy estate.
The fact that the trustee may claim an interest in tax refunds after bankruptcy is what worries most people. However, by using bankruptcy exemptions, most debtors can protect their full tax refunds from the trustee and creditors. Prior to filing bankruptcy, we analyze the exemptions available to determine if your tax refunds after bankruptcy will be in jeopardy. If we feel the tax refunds may be in jeopardy, we may discuss waiting to file bankruptcy until after you have received your tax refunds.
Timing of the Bankruptcy Filing
If you are anticipating a large tax refund that will not be exempt, it may be in your best interest to wait to file bankruptcy until after you have received the tax refunds and spent them. However, you must be careful how you spend the tax refunds so that you are not creating preferences or fraudulent transfers. In order to protect tax refunds after bankruptcy, it is important to discuss these issues with your bankruptcy attorney prior to making any decisions. We can help most debtors protect their tax refunds after bankruptcy if they contact us prior to making any major decisions.
In rare cases, it may be necessary to file a bankruptcy even though some or all of the tax refunds will be in jeopardy. Debtors in these rare cases may lose some of their tax refunds but the benefit of filing bankruptcy outweighs the loss of the tax refunds (i.e. stop foreclosure sale, repossession, garnishment, etc.). It is important to remember that in most cases your tax refunds after bankruptcy will be safe but you must first contact our office so that we can begin to help you resolve your debt problems.
Contact an Experienced Mount Holly Bankruptcy Attorney
Personal Approach, Professional Service, Affordable Payment Plans
The Law Office of Travis J. Richards, LLC is a full-service Mount Holly bankruptcy law firm focused on Chapter 7 Bankruptcy, Chapter 13 Bankruptcy, debt consolidation, credit repair, tax liens, student loans and foreclosure. We represent clients in Burlington County and throughout South Jersey.
Contact our office at 609-267-5297 to schedule your free consultation to discuss bankruptcy and non-bankruptcy alternatives. You may also use our convenient online contact form and one of our friendly, professional staff members will contact you to answer your bankruptcy questions and/or schedule a free consultation with Travis J. Richards.
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