Can You Keep A Tax Refund In Bankruptcy?
With tax season fast approaching there are many people that are starting to think about their income tax return. What you may be wondering about your tax refund if you’re planning on filing for bankruptcy is if you will be able to access the refund and the total portion that you be able to keep. If you are wondering if you can access your tax refund and keep a portion of it, the good news is you can keep the full refund even if you are filing for bankruptcy.
Do You Qualify For A Refund?
In order to determine if you will receive any type of compensation after bankruptcy, you need to figure out whether or not the refund in your taxes is from income that you earned before you filed for bankruptcy. If the refund is a range from income that your crude before you filed, this will likely be part of your bankruptcy estate. This means that the refund has already been distributed to your creditors. If the refund on your taxes occurs from income that you accrued after you filed, this refund will be considered as part of your estate in bankruptcy and you’ll be able to keep the full amount.
When a refund is considered part of your bankruptcy estate, this amount of money is treated no differently than the cash that you have in your bank account. As long as you are able to maintain your payment agreement with your creditors, these funds will not be distributed to your creditors. If you do not maintain your agreement these are funds that could quickly be distributed out to your creditors as compensation.
How To Protect Your Tax Refund From Creditors
Even if you are receiving a refund that is directly tied to income that you received before you file for bankruptcy, you can work at protecting this refund under Chapter 7 bankruptcy. Under new Florida law, it is possible to keep hold of your refund or credit that has been received from the government outside of the agreement made by your creditors.
In order to properly protect these funds under Chapter 7, it is important that you are choosing to spend these funds on necessary expenses. If you’re receiving a refund on income that you earned before filing, spending these funds on a necessary expense like utilities, medical treatment, transportation costs, educational expenses, clothing, rent or mortgage can make sure that you will retain these funds.
If you receive your tax refund and you immediately spend it on a luxury item or expense that is not deemed as a necessity, this could raise the attention of your creditors and it may lead to the distribution of these funds. Immediately spending your tax return on something like a vacation could mean that the refund may be subject to quick dispersal amongst your creditors.
It’s also unwise to consider signing over your refund to a family member or using it to pay down one of your debts. Even though it can be tempting to pay off one of your smallest debts to speed the process of your creditor agreement, these types of transactions are completely prohibited under Chapter 7 bankruptcy.
One way that you can work to protect your refund is to keep it in a separate bank account. Keeping these funds separate from some of your other funds can preserve the identity of the refund and make sure that you can claim it as extra cash that you have access to. Using it only for necessary expenses can make sure that there is no alert to your creditors.
Contact Us If You Have Questions
The nature of tax refunds and bankruptcy can often be a complicated procedure. If you have any questions about how you can protect your income in bankruptcy or maximize your tax refund, contact our experienced team with any of your questions. We know bankruptcy law in Florida and we can help you maximize your financial advantages so that you can manage your bankruptcy case easier and gain a financial advantage even after you filed for bankruptcy.
If you are considering filing your taxes and managing a bankruptcy case this year, contact us today and we can make recommendations on the best way to you can protect your income while still receiving a tax refund. Keep in mind that you can access a tax refund even if you filed for bankruptcy but managing that refund and the dispersal of these funds is crucial to keeping your finances in check.