How Does Bankruptcy Affect a Tax Refund?

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How does bankruptcy affect a tax refund? You definitely want to let your attorney know if you are filing for bankruptcy around tax time. David Shuster says that it is an important factor to consider.

Transcript:

Well this is tax time and so if you are expecting a tax refund you definitely want to let your attorney know. If you’re thinking about filing bankruptcy, you want to factor that in. It is a busier time for attorneys and really probably any attorney, whether bankruptcy or otherwise, because you usually get some money back from a refund you can use it for a legal fee, but you could potentially keep all of your refund even if it’s as high as $10,000. It just depends on your circumstances. Whether or not you own a home, or what other property you have how long you’ve lived in a certain state. But yes it’s very very relevant. In fact if you file your case even in December and you go to a bankruptcy hearing you know 30 days after that you know it’s relevant because you have become eligible to receive that tax refund and then when you become eligible to receive something then it’s potentially property of a bankruptcy estate in a Chapter 7 and even in a Chapter 13 they might just let you keep a portion and have the rest go to pay unsecured debt. So yeah you need to know what either 7 or 13 you need to let your attorney know. It’s something that we just automatically look out for if we see high tax refunds in the past just to make sure in a Chapter 13 that they can adjust their withholdings. The nice thing about bankruptcy is a lot of part of the bankruptcy is predictable. Right. So it’s rules that apply to situations. So it’s the situations that change not necessarily the rules. And so if we know the situation, then we can guard against it and we can plan for it. And that’s the beauty of tax refunds in a bankruptcy. And so it’s it’s mostly stuff that you can plan around to to avoid losing that money.

Author: David Shuster

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