Some people who file for Chapter 7 bankruptcy can keep the tax refund, though not all. The rules of the state, and the pre-bankruptcy safety measures you take to secure the refund, will determine whether you can maintain it.
What Year Did You Get Your Tax Refund?
The first step in evaluating whether you can hold the tax refund is to determine whether it was received before or after you filed for bankruptcy.
Any profits generated after declaring bankruptcy that leads to a profit is yours to hold. If you earn a tax refund depending on the salary earned before declaring bankruptcy, it will be included in the bankruptcy estate, whether you got it before or after the date of filing.
Taxes and Bankruptcy
If you're concerned that you'll lose your refund if you file for bankruptcy, there are steps you can take to protect it. In most situations, you'll be able to maintain the refund if you:
- have sufficient time to reduce the withdrawal to a minimum amount
- spend the reimbursement on major expenses
- defend (exempt) the repayment with a bankruptcy exemption
Make Changes to the Tax Withholding
If you expect to declare bankruptcy in the coming year, you can prevent a refund by changing the withholdings so that you pay the tax you deserve.
You'll receive more money in every paycheck, which you can put toward necessities. It's critical, however, to ensure that you proceed to withhold enough money to cover the money you owe. If you live near Monterey Park California and surrounding areas, you can contact Fong Law Firm.
Getting Ready for Chapter 7
Here are some tips to help you keep the tax refund if you file for Chapter 7 bankruptcy.
If you file your taxes during the tax season: When people file for bankruptcy during tax time, they often have to find what to do with their tax refund. To preserve it, you can use wildcard exemption. If the state does not provide these exemptions, or if you wish to save the wildcard for something else, consider the following options:
After you've received and spent the tax refund, if at all possible, file bankruptcy. If you go this route, make sure to spend the refund on essentials (like the mortgage, medical bills, clothing, or food) rather than on new assets.
Make a payment to the bankruptcy attorney with the tax refund to cover the fees and expenses of the case.
To Protect Your Refund, Use an Exemption
By declaring the tax return as an exempt asset that the holder isn't allowed to use, you may even be able to hold it. This is how it goes.
When a borrower files for Chapter 7, all the assets become a piece of the bankruptcy estate. The trustee in Chapter 7 can use the resources you have when you request to pay the unsecured debts (that owed money that isn't protected by the property).
Most states do not allow you to keep much cash in a bank account under lock and key. Some government exemption systems, on the other hand, have generous wildcard exclusions that cover any estate you choose and can be used to protect a tax refund.
Call Fong Law Group at (626) 289-8299 for a FREE consolidation, and talk to an attorney today. We are here to help you get through this difficult time in your life, and help you with a Fresh Start.