Learn How to Keep Your Tax Refund In Bankruptcy. Don’t spend your tax refund until you read this. Don’t just pay bills every tax season. Break the cycle!
It’s tax season again – that time of year where millions of people get large tax refunds. A lot of times these tax refunds are used to get caught up on utilities and rent, pay down payday loans, medical bills, credit card payments, civil judgments or debt collectors. A $10,000 tax refund is often gone in just a few short weeks. And the same thing happens year after year.
If this sounds like you, you’re not alone. So what if you could keep your tax refund? What if you could break out of the cycle of using your tax refund every year just to pay bills that never seem to go away? If you are reading this – you’re probably already thinking about filing for bankruptcy.
Your tax refund is not protected
Your tax refund is non-exempt – which means a Bankruptcy Trustee will order you to turn it over. That money will then be given to your creditors. The ONLY exception to this is Earned Income Credit (EIC). The EIC portion of your tax refund is protected and you will not have to turn this over.
The tax refund is probably the number one most seized asset in a bankruptcy because it is so easy to liquidate. You hand over your check to the Bankruptcy Trustee and he/she distributes that money to your creditors after taking a few percent off the top for themselves
How to protect it? Spend it.
That’s right. Spend the tax refund. Of course, you need to be careful on what to spend it on – no paying back family members for bills you owe. No trips to the Bahamas. I wouldn’t buy a 10 carat diamond ring or any luxury items. But, feel free to spend it on rent, food, clothes, home maintenance, furniture, car repairs, insurance and your Bankruptcy Lawyer. If you have any questions, absolutely contact a bankruptcy attorney on how to spend your tax refund.
Keep Track of How You Spend the Money
The Chapter 7 or Chapter 13 Bankruptcy Trustee will absolutely 100% want to know how the money was spent down. Do NOT cash your tax refund check unless you are prepared to keep a receipt for every single purchase. If you can’t explain how you spent the money, the Bankruptcy Trustee will assume you are still holding cash on hand and will demand turnover. The best way to track your spending is to keep the tax refund on a prepaid debit card or a bank account. That way there will be an electronic record of every purchase.
Change Your Withholding for Next Year
The Chapter 7 or Chapter 13 Trustee will have an interest in the following year’s tax refund. If you over-withhold – i.e. claim too few deductions – consider changing your payroll deduction so you do not get as large of a tax refund the following year.
How to Keep Your Tax Refund In Bankruptcy
In sum – you tax refund is a non-exempt asset. In a Chapter 7 Bankruptcy the Trustee will ask you to turn it over. The best way to protect your tax refund is to spend it on exempt assets before you file baankruptcy. Depending on when you file bankruptcy, the Chapter 7 Trustee may have an interest in the following year tax refund. You may want to change your withholding to reduce the size of your tax refund. If your tax refund is mainly Earned Income Credit, then that is protected by law.
If you have questions about How to Keep Your Tax Refund In Bankruptcy, please give us a call at 785-379-3600 for a FREE Consultation over the phone, in person or you can email us now.
