May I Keep My Tax Refund in Bankruptcy?
Happy New Year 2016! It is cold and snowy outside but, if you are anything like me, you are already thinking about spring time and warmer days ahead. If you are anything like me you might also be thinking about tax refund season and it is fast-approaching!
Around this time of year a frequently asked question is “will I be able to retain my tax refund if I file bankruptcy?” This is an important question because tax refunds can have a significant impact on individual bankruptcy cases. When you file a bankruptcy all your assets become part of what is known as the “bankruptcy estate.” Your potential tax refund, or the tax refund that was just deposited into your account, is included as an asset of your bankruptcy estate and may be claimed by your bankruptcy trustee – if you’re not careful. If you are likely to receive a refund it is critical to discuss this fact with your attorney. It is extremely important to ask about how to protect your potential tax refund if you file. Several points are important to consider.
1. What portion of the tax refund is Earned Income Credit (EIC), if any? In Nebraska, the EIC portion on your federal and state returns may be protected from your creditors.
2. If you receive a refund and have intentions to spend the money before filing, discuss this with your attorney. Your tax refund may be used for a variety of expenses, including:
• Vehicle maintenance
• Home repairs
• Utility bills
• Medical needs
• Vehicle payments
• Bankruptcy fees
…but there are limits!
Do NOT use it to pay any creditors over $600 without first discussing with your attorney.
Do NOT use it to repay or give money to family.
Do NOT use it to buy luxury items.
Always keep records of where your money is spent if you are considering filing a bankruptcy case.
This, and many other factors, should be discussed with your attorney as part of the consultation process.
If you are considering filing a bankruptcy case, call Pollak, Hicks & Alhejaj, P.C., to schedule a FREE consultation with an experienced bankruptcy attorney.
© Wesley Bain, Attorney at Law