hello my name’s Matthew Cherney, attorney
and owner of Cherney Law Firm in Marietta Georgia
Every year at tax time it seems I receive the same question, ” Will my income tax refund be affected by
filing bankruptcy?” The answer to this question is going to
depend on four main things One: the amount of your income tax refund
two: when you received your income tax refund. Three: the extent of value of your other
property. Four: Which bankruptcy your filing. Let’s first
examine income tax refunds and in a chapter 13 bankruptcy If you receive your refund prior to
filing chapter 13 and you’ve spent that refund, a bankruptcy trustee will most certainly
inquire as to how those funds were spent. Depending upon how those funds were
spent you may be required to pay that money back to your creditors in your chapter 13 plan. If you have not
spent the refund and it’s in the form of cash or in your bank account, it will be treated as an asset subject to
your state’s exemption laws This is when the value of your other
property becomes critical. This is because you’re only able to
exempt property up to a certain amount. To the extent that your property can not
be exempted, you may be required to pay that money back to your creditors in your chapter 13 plan. If you receive
an income tax refund while you’re in chapter 13 nearly all chapter 13 plans require that
at least a portion of that refund be paid to your chapter 13 plan. Let’s
next examine income tax refunds in a chapter 7 bankruptcy keeping in mind some of those same rules.
If you receive your refund prior to filing chapter 7 and you’ve spent that refund a
bankruptcy trustee will most certainly inquire into how those funds were spent Specifically whether or not those funds
were used to pay back any friends or family members if you have not spent the refund and
it’s in the form of cash or in your bank account it will be treated as an
asset and subject to your state’s exemptions laws. Similar
to a chapter 13 to the extent that your property cannot be exempted you may be required to pay that money into
the bankruptcy estate for distribution to your creditors. If you’re
contemplating filing bankruptcy at tax time it’s going to require very careful
planning it’s critical that you speak with a qualified bankruptcy attorney I offer a free consultation and i’m
happy to discuss with you how filing bankruptcy may or may not affect your
income tax refund