Tax Refunds and Bankruptcy– Will I get to keep my refund if I file for Bankruptcy?

Tax Refunds and Bankruptcy– Will I get to keep my refund if I file for Bankruptcy?

by Chhayal on February 17, 2011

Many people when filing for Chapter 7 or Chapter 13 bankruptcy fail to consider whether a portion, if not all, of their tax refund belongs to the bankruptcy estate. General rule is that the day you file for bankruptcy, all of your assets, including your tax return, unless exempt is considered to a part of the bankruptcy estate.

General Rule on Tax Returns and Bankruptcy: Local custom of Bankruptcy Courts and Trustees may vary, but generally the part of the tax refund that belongs to the bankruptcy estate is the part that was accrued before the date that you filed for bankruptcy. For example, if you file for bankruptcy on December 30th, the bankruptcy estate includes 364/365ths  of the income tax refund for that year. If someone files on February 1st , the entire yet to be received refund for the previous year can be considered part of the bankruptcy estate, as well as the 1/12th of the refund for the year of filing.

Not understanding this issue before filing for bankruptcy could become a problem. It is important to consider this issue as well as the implication of filing bankruptcy as it relates to your other assets before filing. Speaking with an experienced bankruptcy attorney can help you better plan prior to filing a Chapter 7 and Chapter 13 Bankruptcy. For example, if a filer is expecting a big return, some attorneys will delay the bankruptcy filing until the filer has received their refund and spent it on necessities. In many situations, the filers use the tax refund for the purposes of paying for the filing expenses and attorney’s fees. 

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*The information provided in this web site is for general information purposes only and must not be regarded as legal advice. The law changes periodically and we make no representations that any of the information is accurate. You are not to make any inference from this website that our firm represents you or would be able to represent you; or that the information contained herein applies to your specific circumstances. You must seek legal counsel to ascertain your rights and obligations.

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