When contemplating bankruptcy, it’s crucial to understand that the timing of your filing can significantly impact your taxes. Consulting with a bankruptcy lawyer in Fullerton, CA, before deciding when to file can help you avoid unexpected surprises. Read on to learn how the timing of your bankruptcy filing can 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

Filing for Chapter 7 bankruptcy requires careful timing, especially when it comes to your tax refund. Depending on when you file, you could either keep your entire refund or lose it to the bankruptcy estate. In Chapter 7 bankruptcy, a trustee takes control of your estate, including any assets that are not fully protected.

If you file for bankruptcy before receiving your tax return, shortly after receiving it (but before spending it), or near the tax deadline but before filing your taxes, your refund must be listed as an asset. It then becomes part of the bankruptcy estate. The Chapter 7 trustee will review your assets and determine if your tax refund is fully protected. State exemptions might allow you to protect your refund, but this depends on the specifics of your case. Not everyone can protect their refund, and any unprotected amount will be liquidated by the bankruptcy court to pay your creditors. A qualified bankruptcy lawyer in Fullerton, CA, can review your case to see if your tax refund might be at risk.

Tax Refunds and Chapter 13 Bankruptcy

Chapter 13 bankruptcy involves reorganizing your debt and making payments to the bankruptcy court over three to five years. During this repayment period, you may receive several tax refunds. How these refunds are treated depends on the bankruptcy court you file in and the specifics of your case.

For example, Southern California bankruptcy filers who pay 100% of their creditors through their Chapter 13 plan can typically keep their entire tax refund. However, if you are only paying a percentage of your unsecured creditors, you will usually need to turn over any amount exceeding $500. If you are over-deducting on your paycheck to receive a large refund at the end of the year, it might be beneficial to adjust to a more accurate tax deduction. A qualified bankruptcy attorney can provide further advice on this matter.

Strategic Timing for Filing Bankruptcy

Understanding the strategic timing of filing for bankruptcy can make a significant difference in the outcome of your case. If you are expecting a substantial tax refund, planning the timing of your bankruptcy filing with the help of a bankruptcy lawyer in Fullerton, CA, can help protect your assets and optimize your financial recovery.

Get Professional Advice Today from a Bankruptcy Lawyer in Fullerton, CA

If you have questions about the timing of filing for bankruptcy or other bankruptcy-related issues in California, it’s important to seek professional advice. Contact Winterbotham Parham Teeple, a PC at 800.400.9000 for a free legal consultation. We will assess your situation and help you determine if bankruptcy is a viable option for you.