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Bankruptcy And Tax Refunds

Charlotte Bankruptcy attorney Bryan W. Stone answers the question: “Do I need an attorney to file bankruptcy?”

 

Though it’s not something many people think about, filing bankruptcy can have an important impact on whether you get to see your yearly tax refund. As a result, timing your filing can matter a great deal, a decision that could cost you potentially hundreds or thousands of dollars.

 

Tax sign Charlotte Bankruptcy Lawyer North Carolina Tax Debt AttorneyChapter 13

 

In the case of a Chapter 13 bankruptcy, the money you receive from a tax refund will almost always need to be turned over for payment to your creditors. This is because the tax refund is viewed as disposable income and will be considered surplus money that will almost always be paid into your bankruptcy plan.

 

The only exception is if you are able to excuse a tax refund from your repayment plan. To do this you’ll need to file a request with the bankruptcy trustee and explain why the money should be excused. Usually this will only be allowed in cases where you need the money to pay for something unexpected.

 

What issues are at play?

 

Whether a person gets to keep his or her tax refund when filing for a Chapter 7 bankruptcy depends on several factors: 1) the amount of the overall refund, 2) any bankruptcy exemptions and 3) when the case is filed.

 

Bankruptcy and refunds

 

The general rule is that once you file for bankruptcy your assets become property of your bankruptcy estate. This entire estate is used to repay creditors and is designed to ensure creditors receive as much money as possible before your debts are wiped out. This overall bankruptcy estate includes any tax refunds you are owed as of the filing date, even if they haven’t yet been paid to you. This means that unless your refund check is specifically exempted, the bankruptcy trustee is empowered to take the refund money and use it to pay creditors.

 

Timing

 

If you aren’t in a big hurry to file bankruptcy and don’t have creditors breathing down your neck, one way to ensure you get to keep any big refund heading your way is to wait and file bankruptcy after you have received and spent the money. Remember though that if you go out and buy an expensive item, that too will be included in your bankruptcy estate and could be sold. The best way to ensure the money is used and not returned is to spend it on living expenses, things such as rent, food or utilities that cannot then be used to pay creditors.

 

If you find yourself needing the services of a Charlotte, North Carolina bankruptcy attorney, please call the skilled lawyers at Arnold & Smith, PLLC  today at (704) 370-2828 or find additional resources here. As professionals who are experienced in the bankruptcy arena, our attorneys will provide you with the best advice for your particular situation.

 

About the Author

Bryan 1Bryan Stone is a Partner with Arnold & Smith, PLLC, where he focuses his practice on all aspects of bankruptcy, including: Chapter 7, Chapter 11, Chapter 13, home loan modifications and landlord-tenant issues.

A native of Macon, Georgia, Mr. Stone attended the University of Georgia, where he earned a BBA in Banking and Finance, and Wake Forest University School of Law, where he obtained his law degree.

Following law school, Mr. Stone relocated to Charlotte, where he currently serves as Chair of “Bravo!” – a young professionals organization associated with Opera Carolina – and founded the University of Georgia Alumni Association of Charlotte.

In his spare time, Mr. Stone enjoys perfecting his barbeque skills for the annual “Q-City BBQ Championship” and playing softball in the Mecklenburg County Bar softball league.

 
Source:

“Filing Taxes After Filing for Bankruptcy,” published at TurboTax.Intuit.com.

 

 

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