As a bankruptcy lawyer in Santa Ana, our clients often ask if they will be able to keep their tax refund after filing for bankruptcy. The answer to this question, like many questions with the legal justice system, varies on the situation. If you have questions about bankruptcy, the type of bankruptcy you may consider filing, and a specific question about your tax refund, call us and scheduling a consultation with a bankruptcy lawyer in Santa Ana. We can look at your specific situation and determine what type of bankruptcy is best for you.
Can I keep my tax refund when filing for bankruptcy?
The question of being able to keep your tax refund after filing a bankruptcy, and hence the maybe answer, depends on largely upon the type of bankruptcy you are going to be filing. It also depends heavily on the circumstances surrounding your bankruptcy and who you have representing you as your bankruptcy lawyer in Santa Ana. Before filing a Chapter 7 bankruptcy, most people are able to keep and protect their tax refund check.
However, for Chapter 13 debtors, this protection is far less likely. Whether the bankruptcy trustee will take your tax refund check or not, depends on the type of bankruptcy, the timing of your filing, and what precautions we can take to protect your refund.
Plan carefully before filing bankruptcy
As your bankruptcy lawyer in Santa Ana, we will help you plan carefully to keep your tax refund. If you file for bankruptcy, your refund is an asset. As with all assets, if your tax refund is considered exempt then the bankruptcy trustee cannot take it. Depending on when we file your Chapter 7 bankruptcy you may or may not be able to keep your refund. Therefore, timing is extremely important. If you choose to file your own taxes, you will have to figure out what to do with the tax refund that you receive.
Bankruptcy exemptions to protect your tax refunds
With the careful guidance of your bankruptcy lawyer in Santa Ana, you can exempt your tax refunds from liquidation. In most cases, it is recommended that you file bankruptcy after receiving your refunds. Keep in mind that if you spend your tax refund, you should spend them on necessary living expenses. Necessary expenses include your mortgage, medical fees, clothing, and food. You should not purchase new assets or hide your refunds.
You may also use your tax refund to pay your bankruptcy lawyer for the fees and costs associated with your bankruptcy case. If, however, you choose to file for Chapter 7 bankruptcy later in the year it can be problematic, especially if you are expecting a large refund. In these cases, it is highly advisable that you speak and strategize with, a bankruptcy lawyer in Santa Ana. We can go over various strategies to help to best protect your tax refund.
For example, some people who have large withholdings from their paycheck can adjust their tax withholding to a lower amount. This way, they do not end up with a large tax refund. In other cases, people can deposit more of their salary into an employer IRA or 401k.
Bankruptcy law is complex, so your best option is to call our office and go over any specific questions in detail.
NOTE: This is for informational purposes only and does not constitute legal advice.