Tax Refund Season
The snow has melted away despite Punxatawney Phil seeing his shadow, spring is around the corner and, before long, April 15th will be here and gone – TAX DAY in America is less than two months out. For some, tax returns represent a source of stress and anxiety over how much more we have to pay to Uncle Sam. For others, filing a tax return is the ticket to getting the big annual refund that helps fuel the family budget over the next couple of months.
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.
One way to spend a tax refund for many is to repay all those little loans from family members you’ve been meaning to pay back for awhile. After all, repaying family members is a good thing… isn’t it?
Morally, yes, it is a good thing. Legally? Well, it depends when it comes to bankruptcy law. Under the bankruptcy code, payments to family members within 12 months prior to filing a bankruptcy are considered avoidable preference payments and are reversible by the appointed Trustee. This means that the Trustee could contact your family member and request they turn over the amount you paid to your family within that 12 month time frame. Whoa! Not the outcome you hoped for!
If it is too late and you repaid the loan and need to file bankruptcy, don’t despair, there are possible solutions. For example, if you have the resources to pay the Trustee the amount you repaid to the family member, the Trustee will accept the payment from you and not contact your family. If you are experiencing financial struggles, refrain from repaying family members and consult with a bankruptcy attorney before deciding who to pay and when.
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 Hicks & Alhejaj, P.C., to schedule a FREE consultation with an experienced bankruptcy attorney.
© Wesley H. Bain, Attorney at Law