This time of year anyone that is considering filing bankruptcy needs to be aware of how bankruptcy impacts their potential tax refund.
When filing bankruptcy, the Debtor has an obligation to list all of their assets. That’s easier said than done. One such asset that can be easily overlooked is the potential for a tax refund. It’s easy to miss this asset because you can’t see it, and you may not even know how much it is for months, let alone have it in your possession. However, the law is clear, that the future tax refund is property of the bankruptcy estate.
Determining how much of the tax refund must be turned over can be a little tricky. It is calculated based on when the bankruptcy case was filed and then applicable exemptions can be used to protect some or sometimes all of a refund. Since these exemptions vary from state to state, it is important to discuss this information with an attorney.
It is also important to point out that many times bankruptcy cases can be discharged weeks or months before tax returns are filed. This does not change the Debtor’s obligation to provide an accurate copy of the tax refunds, and turn over the non-exempt proceeds. The good news is, in a Chapter 7 case, this obligation is only for one year. It does not apply to multiple years of tax refunds.
So the end of year can be an excellent time to consider filing bankruptcy to start the new year off on the right foot. However, the potential of receiving a tax refund must be considered to make the best decision.
If you’d like to speak with a bankruptcy lawyer, contact W M Law today.