QUESTION
Will I lose my tax refund if I file for Chapter 7 bankruptcy?
Asked on Dec 04th, 2013 on Bankruptcy - Washington
More details to this question:
My husband and I are considering filing bankruptcy due to old business debt that carries a personal guarantee. If I were to start my bankruptcy case in January, will I lose my tax return that I plan to file for and receive in February or March? I plan to use our entire tax return to catch up on our mortgage that we foresee we will be behind on due to my husband's upcoming lay-off period at work.
14 ANSWERS
As of last July, Oregon residents are allowed a choice to use the federal bankruptcy exemptions or the state exemptions, whatever is best for you. The federal exemptions are far more generous in most cases, and it is quite likely that you would be able to use them to exempt your entire tax refund. The primary issue is how much equity you have in your home, since the homestead exemptions work differently in the state and federal rules. Only a lawyer can explain how the different rules would apply in your case.
Answered on Dec 10th, 2013 at 8:54 PM
Deborah F. Bowinski
It depends upon where you live and what other assets you own. Even though you have not yet received the funds, the refund is an asset in your case. Unless you can find and properly claim an appropriate exemption that will protect it, your tax refund will likely become an asset of your bankruptcy estate.
Answered on Dec 10th, 2013 at 8:54 PM
1 Award
It depends on the value of your other assets and where you lived 2 years ago. If you have lived in Oregon for more than 2 years and you do not have other assets with significant value, then you will not lose the tax refund due to filing the bankruptcy.
Answered on Dec 10th, 2013 at 8:54 PM
General Practice Attorney serving Coeur d'Alene, ID
at
Michael B. McFarland, PA
Update Your Profile
Generally, any tax refund you receive, or have in your possession on or after the day you file bankruptcy is subject to turnover to the trustee. Many people wait to receive their refunds, and spend the money on necessities BEFORE they file the bankruptcy. However, one must be careful not to make voidable, preferential payments, which could backfire. It would be best to consult with an experienced bankruptcy attorney PRIOR to spending the refund, and PRIOR to filing bankruptcy, in order to minimize the potential for a problem.
Answered on Dec 10th, 2013 at 8:54 PM
The answer to this question depends on the dollar amount of the refund(s). You are entitled to exemptions under state and federal law that protect your assets, including future tax refunds, up to certain dollar amounts. You should consult an experienced bankruptcy attorney to determine what exemptions would apply to your assets.
Answered on Dec 10th, 2013 at 8:54 PM
David Thomson Egli
You will not lose the tax refund to the extent that you can claim an exemption for it. California has two sets of exemptions. Which you will need to use depends upon the equity in your house. If you have little or no equity in your residence, then you can use the exemptions under Code of Civil Procedure section 703. One of the exemptions under that section, commonly known as the wild card exemption, That exemption, about $25,000, can be applied to any type of property, including a tax refund. If you have a lot of equity in your residence, then you will need to use the exemptions under section 704. There are no exemptions for tax refunds under this section and the exemption for equity in your residence does not allow the unused portion of it to be applied to other property. So if you have substantial equity in your residence, you may want to wait until after you get your tax refund before filing. When you get your refund, use it to catch up on your mortgage payments.
Answered on Dec 10th, 2013 at 8:54 PM
Appellate Attorney serving Grosse Pointe Farms, MI
at
Musilli Brennan Associates, PLLC
Update Your Profile
Tax returns are part of a bankrupt's estate. Confer with an attorney now!
Answered on Dec 10th, 2013 at 8:53 PM
2 Awards
If you file bk before you get your tax refund the trustee will take it. If you file after you receive it and use it to pay your mtg arrears keep in mind that it counts as income if obtained during the 6 months prior to filing.
Answered on Dec 10th, 2013 at 8:53 PM
Bankruptcy Chapter 7 Attorney serving Fort Collins, CO
at
The Salas Law Firm LLC
Update Your Profile
Probably. You need to speak to an attorney to be sure.
Answered on Dec 10th, 2013 at 8:53 PM
Unless you have exemptions available to you to use to protect your upcoming tax refund, such as a wildcard exemption or exemption due to the EIC, the refund will not belong to you upon filing bankruptcy and in fact will probably be sent directly to your bankruptcy trustee to be used to pay your debts.
Answered on Dec 10th, 2013 at 8:53 PM
Debt Settlement Attorney serving San Diego, CA
at
Law Offices of Kathryn Tokarska
Update Your Profile
The answer will depend on what assets you have, which will dictate which set of exemptions you will use and maybe even what type of bankruptcy you would be best to file and when. If the tax refund fits into an exemption you have available then you can keep the tax refund. Without actually knowing more about your situation I cannot give you a definitive answer. This may sound more "lawyerly" than you were hoping but really how a case progresses depends on the facts of the case. BTW, you can stop foreclosure and bring a mortgage current in a chapter 13, maybe even get rid of a second mortgage altogether if the circumstances are right. Whether this is a better route than chapter 7 again depends on more details about your situation including the types and amount of debts you have, your "current monthly income", your reasonable and necessary living expenses, and transactions you may have done in the past. A consultation with a bankruptcy attorney should answer this and more. It will likely also create new questions, considerations you may not have yet thought about.
Answered on Dec 10th, 2013 at 8:53 PM
Debt Settlement Attorney serving Chicago, IL
at
Law Offices of Daniel J. Winter
Update Your Profile
The answer is that it depends on how much it is, and your whole situation. You should contact an experienced bankruptcy attorney to discuss your financial solutions right away. You may be able to come up with a plan to keep the refund, and plan for the future. But, you need to plan for this now. Call an attorney now.
Answered on Dec 10th, 2013 at 8:51 PM
Bankruptcy Attorney serving Olympia, WA
at
Weinberg & Ziegler, PLLC
Update Your Profile
We may be able to protect your income tax return in the bankruptcy filing.
Answered on Dec 10th, 2013 at 8:51 PM
Whether you would lose your tax refund depends upon whether or not you will be able to exempt the amount that you are expecting to receive. There are many factors that play into this question, and it should be discussed with competent, local bankruptcy counsel. If it appears that some or all of the refund would be at risk, you can simply wait and file your bankruptcy after the tax refund has been received and spent down.
Answered on Dec 10th, 2013 at 8:51 PM