If you are considering declaring bankruptcy, you should be aware that the timing of your filing may have an impact. One of the reasons we recommend consulting with a bankruptcy lawyer before deciding when to file is to avoid surprises. Continue reading to find out how your timing may affect your tax return, and then call Winterbotham Parham Teeple, a PC at 800.400.9000 for a free consultation.
Tax Refunds and Chapter 7 Bankruptcy
When filing for Chapter 7 bankruptcy, timing may be critical. You could keep the entire amount of your refund or lose it completely, depending on either the timing or the facts of your case. In Chapter 7 bankruptcy, a trustee takes control of your estate, meaning they have the right to liquidate any assets that are not fully protected.
Whether you file for bankruptcy before receiving your tax return, shortly after receiving the refund (but prior to spending it) or even near the tax deadline but before filing your taxes, it will must be listed as an asset and will become part of the bankruptcy estate. Upon filing your bankruptcy, the Chapter 7 Trustee will review your assets and determine if the tax refund is fully protected. State exemptions may allow you to protect the money, but it will depend on the specifics of your case. Not everyone can protect their refund and any amount not protected will be liquidated by the bankruptcy court, meaning it must be turned over and used to pay your creditors. A qualified bankruptcy lawyer can review the facts of your case to see if your tax refund may be at risk.
Tax Refunds and Chapter 13 Bankruptcy
A Chapter 13 bankruptcy is distinct in that it is a debt reorganization in which you make payments to the bankruptcy court for a period of three to five years. This repayment allows you to pay all or a portion of your creditors, depending on your financial circumstance. You may receive several tax refunds during that three to five year repayment period. How those tax refund will be treated will depend on the bankruptcy court you file in and the facts of your case. For instance, for Southern California bankruptcy filers, you can usually keep your entire tax refund if you are paying 100% of your creditors through your Chapter 13 plan. If you are only paying a percentage of your unsecured creditors, you will typically be required to turn over any amount in excess of $500.00. If you are over deducting on your paycheck to receive a large refund at the end of the year, it may be in your best interest to adjust to a more accurate tax deduction. A qualified bankruptcy attorney can advise you further.
Call Winterbotham Parham Teeple, a PC and Start Filing For Bankruptcy Today.
We recommend contacting Winterbotham Parham Teeple, a PC at 800.400.9000 for a free legal consultation if you have questions about the timing of filing for bankruptcy or other issues related to California bankruptcy. We will gladly assess your situation to see if bankruptcy is a viable option for you.