Before the client files for bankruptcy, the question always arises: Can I keep my tax refunds after filing? The answer is a very simple “maybe.” It depends on whether you are filing a Chapter 7 or Chapter 13 bankruptcy. Tax refunds can be several thousand dollars and I, like most people, start thinking about what I am going to do with it before I get it. .

In a Chapter 7, tax refunds are an asset even if you haven’t received the refund yet. Think of an early repayment as a future asset. When you file your Petition and Exhibits, you must list all property and property rights. This includes that future tax refund you’re planning to use to fix your car, take a trip, or catch up on some bills.

Once you list an asset, you must exempt it. In Michigan, we can use federal exemptions or state exemptions. Most people use federal waivers, so we’ll do that too in this post. Since there is no specific exemption to protect a tax refund, we use the “wild card” exemption to protect it, and it typically covers the entire refund. For example, your refund last year was $4,000.00. He then presents his case at the end of June. You would schedule $2,000 in advance tax refunds, and then use your wild card exemption to fully protect you. It is not so difficult.

What happens if you do not list the asset or exempt it in its entirety? That is a much easier answer. you will lose it The Trustee will take the refund, or the non-exempt portion, sometimes directly from the IRS, and use it to pay your creditors. The Receiver won’t think twice. The Receiver may even keep your case open until tax season to review your tax returns and then 16 refunds. It happens all the time to unsuspecting filers and inexperienced bankruptcy attorneys.

For more information on bankruptcy, please take some time to visit my website at: Downdriver Bankruptcy.