Getting the claim of a Tax Refund is one of the most crucial aspects of filing for bankruptcy. It is quite a valuable asset, both to the filer as well as the bankruptcy creditor. And both the parties want to try to get the maximum claim portion out of it. To increase your chances of getting the maximum portion of the claim, it is important that you hire a professional attorney with experience in this field. As, multiple factors depend on who gets the maximum portions like – the Chapter under which you file for bankruptcy, when you file for it along with the state where you are filing from. Having a professional like Recovery Law Group by your side can get you an added advantage in this matter.
Understanding Tax refunds when filing for bankruptcy
A tax refund is an amount that you get back if paid in excess while filing your taxes. Generally, it is an added advantage if you get a refund at the end of the year, but not so if you have filed for bankruptcy. This is because, if you have filed for bankruptcy and you get the refund amount, instead of using it yourself you might have to end up paying that to the creditors whom you owe money.
How you can protect your Tax Refund while filing under Chapter 7 bankruptcy
Though it is quite a difficult task to protect your tax refund from being paid to the creditors in chapter 7 bankruptcy, these are the available options of how you can save the maximum amount:
- Exemptions: There is a list of property in each state that can be protected or exempted by its residents. Though most states do not have exemptions to protect a tax refund, however, some states do allow a choice between 2 lists- state exemptionsand federal bankruptcy exemptions. Alternatively, you can also safeguard your refund by using 1) earned income credit exemption, 2) a wildcard exemption, 3) Cash Exemption.
- Judicious Planning: For this, you have to start planning in advance. If in the past you have received tax Refunds and are expecting it yet again this time, you must adjust your withholding in such a manner that the minimum amount can be deducted from your paycheck. Eventually, doing this will decrease the value of the refund that you will get and nor will the creditors show any interest in a petty amount.
Alternatively, another sensible option would be to spend the refund amount received by you and then file for a bankruptcy. It would be advisable to use this amount to necessary expenses like –
- rent or mortgage payments
- utilities
- food
- clothing
- medical expenses (including glasses and contacts, braces and dentures)
- car payments, maintenance, and repairs
- education expenses, and
- attorney’s fees and costs for your bankruptcy filing.
While doing so, avoid transferring any amount to a friend or a family member, as inevitably it can be ceased or taken by the trustees. Also, the same applies while paying to any creditor a lump sum amount, example a credit card balance. Ensure, that you keep proper records of all your receipts, expenditures and other knowhows of your transactions.
How you can protect your Tax Refund while filing under Chapter 13 bankruptcy
In case you are filing for a bankruptcy under chapter 13 and are due to receive your Tax refund, ensure that you adjust your withholding accordingly to receive the minimum amount in your paycheck. Since, as per the norms of Chapter 13, all disposable income received during the time of filing must be paid in whole. Therefore, any tax refund received will be calculated as extra disposable income and hence cannot be protected.
Nonetheless, each case and scenario is different, hence contacting a professional attorney for the most viable and beneficial option in your case would be advisable. If you are filing for a case in Texas, Dallas or Los Angeles, you can reach out to the Recovery Law Group at – https://recoverylawgroup.com/bankruptcy/ or 888-297-6203 for their professional experience.