Tax season is once again upon us, as we begin to receive our W2s and 1099s. Just like frigid Pittsburgh weather, we can complain… but it won’t do any good!
For many of my clients, tax refunds are an important part of meeting their monthly obligations. Tax refunds are often used to catch up mortgages, do household repairs, or buy necessities. For many Americans, tax refunds are a form of forced “savings”. Losing a tax refund could be catastrophic.
Individuals looking to file bankruptcy are therefore usually concerned about losing their refund. Luckily, bankruptcy law allows for “exemptions” which can be used to protect your property and assets from your creditors. These exemptions are not unlimited, so it is important to discuss them with your bankruptcy attorney, and to list all of your property when meeting with him or her.
There is not an exemption dedicated solely to tax refunds. However, the Federal exemptions under bankruptcy law do provide a “wildcard” exemption. Depending on how equity you have in a home (if you have one) the value of this wildcard exemption could be anywhere from zero up to nearly $10,000 for an individual.
An experienced bankruptcy attorney can make sure these exemptions are maximized. If you are looking to file bankruptcy soon, and expect to get a significant tax refund this year, you should file your taxes as early as possible so that the amount can be determined and exempted. As long as it can be exempted, you can file your bankruptcy without concern of losing it. If it goes beyond the value of your exemptions, you will need to discuss the situation further with your bankruptcy attorney.
Also, it should be noted there are things you can do with your refund that are strongly frowned upon or forbidden by the bankruptcy court. Paying back friends or family with a “preferential payment” would be one. Making a large frivolous purchase may be another. Talk with your bankruptcy before spending any of it if you have any doubts.
If you are concerned about your pending tax refund, and are considering filing Chapter 7 bankruptcy (or Chapter 13 bankruptcy), can me at 412-414-9366. Or email me and set up an appointment. With my experience, I will make sure you keep all of your refund, or as much as possible. Tax season doesn’t need to be ALL bad.