Can You Keep Your Tax Refund After Filing Chapter 7?
Many Americans expect the money received in a tax refund. After all, your government often sends you a check just to do what you think it should do. However, for those facing Chapter 7 bankruptcy, the retention of money received from your tax refund is not always guaranteed. The decision whether or not to keep your tax refund is usually based on when you received that tax refund and when you file for bankruptcy, but there are several ways to make sure you get your money back. So now we will talk about the question, ‘Can you keep your tax refund after filing chapter 7?’
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How can I save my money?
Assuming no other steps are taken to prevent the loss of your refund money, the trustee in charge of your case will handle it based on the time you receive those funds. Any money left over from the year prior to your bankruptcy will be treated as your current cash and will be used to pay off your debts. Any amount of tax refund based on the money you earned before filing will be treated the same.
However, parts of the amount of a tax refund derived from the money you earned after filing are exempt from garnishment by your administrator, as well as any tax refund you receive the following year. For the maximum amount of money your government gives you to withhold payment of your taxes after filing for Chapter 7 bankruptcy, it really is the time! The best way to avoid losing your tax return to your administrator and creditors is to plan ahead. While it may be difficult to plan your bankruptcy well in advance, you can better predict and prepare for them. The three ways to conserve your money over time and careful planning include:
- Including your tax return funds as part of your bankruptcy exemptions.
- Spend your refund before you are asked to return it and use it to cover the necessary costs.
- Adjust your withholding on your tax forms to minimize the amount you receive as part of your refund.
Use the exemption to protect the refund
You can keep your tax return if you claim it as exempt property that the administrator has no right to use. Is that how it works. When a debtor files for bankruptcy under Chapter 7 all of the person’s assets become part of the bankruptcy estate. Which is managed (controlled) by the Chapter 7 bankruptcy trustee. In Chapter 7 bankruptcy your trustee can use your assets. When you file bankruptcy to pay your unsecured creditors (those creditors who have debts that are not insured by the property).
That doesn’t mean you lose everything you have. You have the right to keep (exempt) property that your state believes you need to work and live. Most states will not allow you to protect a large amount of money or money in a bank account. However some state exemption systems have generous wild card exemptions. That cover any property of your choice that you can use to cover a tax refund.
File for bankruptcy after issuing your refund
If you want to wait until after you receive your tax refund and spend it this may work. But if you don’t spend the money in a way that can be considered “frustrating creditors.” You can use your tax refund to pay your bankruptcy. You will be safe as long as you don’t buy a luxury or unnecessary item give it away. Or use it to pay off any debt you have to you, it will probably be fine. As your bankruptcy attorney, we can see if the administrator will file an “asset less report” after you are discharged. If so, you can rest easy on your refund once that report is filed and your bankruptcy is closed.
Before you go, I hope this article can you keep your tax refund after filing chapter 7 is helpful for you.