Will I Lose My Tax Refund in Bankruptcy?
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Tax season is in full swing, and with that comes the questions from people considering filing bankruptcy: If I file, will the bankruptcy court take my tax refund. Your tax refund could be subject to being used to pay your creditors when you file chapter 7 bankruptcy, so let’s take a closer look at your options.
Your federal or state bankruptcy exemptions could cover any tax refund you are owed. If you use a bankruptcy exemption to cover your tax refund, the bankruptcy trustee will not be able to touch it. There are states that also consider child care and earned income to be public benefits, and so the trustee would not be able to touch that portion of your tax refund.
If you are owed a large tax refund and must file right now, it’s best to speak to a bankruptcy attorney to determine if your refund is at risk. They can help you do some pre-bankruptcy planning to avoid losing your refund or show you some other options.
If you don’t need to file right away you can complete your taxes, get your refund, wait until you have spent it, and then file. You may need to wait 6 months in order for the bankruptcy court to not be able to consider the refund as part of your estate however. Either way, you should get a professional’s opinion to make sure you don’t forfeit thousands of dollars.
