Can I Keep My Tax Refund After Filing for Chapter 7 Bankruptcy?
Tax season is here, and many people in the United States are eagerly awaiting their tax refund check. For anyone who has filed or considering filing for Chapter 7 Washington bankruptcy, you may wonder if you’ll be able to keep your tax refund in 2018.
The short answer? Possibly. Most people who file Chapter 7 will be allowed to keep their refund check, if they meet certain considerations. There are a few things to keep in mind when it comes to Chapter 7 and your tax refund.
Tax Refund and Your Bankruptcy Estate
When filing for Chapter 7, all of the assets become part of the bankruptcy estate. It’s controlled by an independent third party, known as the bankruptcy trustee. This includes assets such as money, cars, houses, boats and even jewelry. A tax refund is also considered an asset and the trustee could ask about it during the meeting of creditors.
Federal exemption law currently allows $1,250 plus $11,850 of the homestead exemption to be used to exempt any property for single filers. This amount is double for married couples. Not many filers have equity in their homes, so this exemption can be applied to personal property or a large tax refund. However, certain conditions must be met in order for you to keep the refund.
Timing Considerations for Tax Refund
Chapter 7 bankruptcy looks at what is owed the second the case is filed. It also takes into consideration monies owed but not yet paid out. The tax refund from last year is considered owed on January 1 of the current year. This is regardless whether or not it has been paid out. If Chapter 7 was filed before receiving and spending those monies, they could be taken away unless they’re covered under an exemption.
Not every person who files for Chapter 7 bankruptcy will qualify to keep their refund. If you have lived in Washington for a less than two years, you may not be able to use the federal exemptions. You may have to use the exemptions of the state you were living in prior. Those exemptions could affect the amount you’re allowed to keep (if any at all). An experienced Tacoma bankruptcy can help clarify this during a consultation.
Preparation for Filing Bankruptcy
If you’re fairly certain that you will file for bankruptcy within the next year, you can protect your tax refund. For example, you can completely avoid the refund issue altogether by adjusting the amount of income tax you pay on every paycheck. This way, you will receive more money from every paycheck. If any refund is owed to you at the end of the year, it may be too small for the trustee to want to keep.
Dedicated Bankruptcy Attorney in Tacoma & Puyallup, WA
If you’re having financial troubles and haven’t yet filed for bankruptcy, get help now. An experienced and dedicated Tacoma bankruptcy attorney is a worthwhile investment with your tax refund check.
If you would like more advice concerning your tax refund and Chapter 7 Washington bankruptcy, give our offices a call at (253) 272-4777 to schedule a cost-free consultation. At the Law Offices of David Smith, we have helped countless people with bankruptcy. We’ll find an acceptable solution out of control debt and finally get their finances under control.