Tax Refund in Bankruptcy

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Tax Refund in Bankruptcy

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People who have filed for bankruptcy are often worried regarding whether they can keep their tax refund or not. according to lawyers of Los Angeles based bankruptcy law firm Recovery Law Group, it depends on which chapter you have filed, how much refund you will receive and what you intend to do with it.

Chapter 7 bankruptcy

In this case, tax refunds automatically become part of your bankruptcy estate and thus are handed over to bankruptcy trustees. this refund is then used to pay off your creditors. if you can get the tax refund exempted either partly or fully, then you can keep it. Bankruptcy allows certain exemptions to protect the debtor’s assets. you can use your exemptions to protect your tax refund if the need arises.

Chapter 13 bankruptcy

in the case of chapter 13also, tax refunds are part of the bankruptcy estate and need to be handed over to the bankruptcy trustee. The tax refund becomes a part of your disposable income since all your essential monthly expenses as well as planned payments can be executed through your monthly income. Hence, the tax refund is additional money which you do not require.

However, you might be able to keep your tax refund if you can prove that you need it for some sudden but essential all-expense like medical bills or repairing or replacing any appliance/vehicle. a tax refund cannot be used to pay for utilities, food or any other regular expense which is covered by your monthly income.

in case you’re worried about tax refunds while filing for bankruptcy, you should consult an experienced bankruptcy attorney at 888-297-6023 to know what your options could be.