Your Tax Refund and Bankruptcy

The end of tax season can mean getting a substantial refund which is something that many Americans look forward to every spring and even this year when the deadline has been extended. In Fiscal Year 2019, the IRS collected more than $3.5 trillion in gross taxes and issued almost 122 million tax refunds that amounted to more than $452 billion dollars. However, the prospect of receiving a big tax refund check can become a lot less exciting and more confusing if you are currently in the process of getting your Chapter 7 bankruptcy case filed. As you have likely been told you will have to reduce your luxury assets as part of the bankruptcy process, there is probably one important question on your mind: Will I get to keep my tax refund? 

The Best Way to Protect Your Tax Refund – Spending it 

It is likely surprising, but the way to avoid losing your tax refund is to file your tax return and then take any tax refund you receive and spend it prior to filing your bankruptcy. However, that doesn’t mean that this money should be blown. Instead, it should be used on expenses that are legally viewed as being necessary which can include payments related to your:

• Housing
• Food
• Car
• Clothing
• Medical care
• Educational costs

Ideally, you won’t have any tax refund money in your bank account on the day that you file your bankruptcy but that doesn’t change the importance of spending your tax money carefully and on items that fall more within the category of being “needs” than “wants”. What you absolutely don’t want to do is run out and buy a bunch of luxury items with your refund. And while it can be tempting to try to pay off a loan or two with the lump sum of money you receive, you also should not try to pay back your creditors with this money. Either of these actions can affect exactly how your filing is perceived and even impact whether or not it gets approved.

An experienced bankruptcy lawyer can work with you to help you minimize the loss of your tax refunds in bankruptcy. If you are reaching the decision that you are going to file for bankruptcy, you should obtain legal help as soon as possible from someone who can walk you through the process and ensure you are making the best decisions for your individual situation.

We Can Help Throughout the Bankruptcy Process

If you have found yourself in deep debt, it may seem like you don’t have any rights left but nothing could be further from the truth. As the Plantation bankruptcy attorneys at Nowack & Olson, PLLC, we understand that good people can end up in bad financial situations and we offer help, not judgment. You can depend on us to answer any questions you have in regard to your bankruptcy and to guide you toward steps that can lead to a better financial future. Contact us today to begin discussing how you may be able to improve your financial situation by filing for bankruptcy.

Resources:

irs.gov/newsroom/tax-day-for-individuals-extended-to-may-17-treasury-irs-extend-filing-and-payment-deadline

irs.gov/statistics/returns-filed-taxes-collected-and-refunds-issued