If you are struggling with debt and filing for bankruptcy, you may have some concerns regarding whether or not you will be able to keep your tax refund. The good news is that, in many cases, there are ways for you to keep your tax refund with a little careful planning.
How to Keep Your Tax Refund
First, it is important to determine when you earned your tax refund and if it was before or after you filed for bankruptcy. If you earned your tax refund after filing for bankruptcy, you can keep it. On the other hand, if you earned the refund before filing for bankruptcy, it will be part of the bankruptcy estate, regardless of when you receive it.
You will likely keep your tax refund if:
- You spent your tax refund on necessary expenses
- You had enough time to adjust your withholding, reducing the refund to a smaller amount
- You protect your tax refund with a bankruptcy exemption
If you believe you may end up having to file for bankruptcy within the next year, you can avoid complications with your refund by adjusting your withholding, so you only pay what you owe. You will receive more money in your paycheck, which you can use for necessary expenses.
Necessary items are typically defined as:
- Medical care
- Rent, mortgage payments, or home repair
- Car maintenance or payments
- Education expenses
Expenses that are not allowed include repayment to a family member or friend, luxury goods, and expenses paid in advance, such as multiple rent payments.
You may also protect your tax refund if you claim it as exempt property that the bankruptcy trustee cannot use. When debtors file for a Chapter 7 bankruptcy, their assets become part of the bankruptcy estate, which the bankruptcy trustee can control. However, you will not necessarily have to give up all of your assets. You may keep exempt property that the state believes you will need to live and work.
Schedule a Consultation with an Experienced Bankruptcy Attorney Today!
At The Southard Law Firm, L.L.C., our bankruptcy team will advise you and walk you through the process of your bankruptcy to ensure you make the most of it, so you can have the best fresh start possible.
Reach out to our law office today at (513) 399-8806 to schedule a free, no-obligation consultation with our attorney to get started on your case and learn more about what we can do for you.