The time just before the holidays is tax planning season. The big question for those who’ve filed for bankruptcy or are considering filing for bankruptcy is whether they will receive a refund.
On the day you file for bankruptcy, your assets become part of the “bankruptcy estate,” tax refunds included. The purpose of the estate is to collect and distribute your assets among your creditors, but the process itself costs money so collecting needs to be worth it.
In the case of a Chapter 7 bankruptcy, there normally aren’t enough assets to justify the process of collection and distribution. If you are owed a small refund of a few hundred dollars, you can probably keep it, but if you receive a large return, it’s an easy target for collecting.
How to prevent losing your tax refunds
Even though it’s exciting to receive a big tax return in the mail, thousands of dollars in tax refunds isn’t actually a good thing. If you receive a large refund every year, it is because you are paying too much in taxes throughout the year. Overpaying taxes in your paycheck is like giving the government a free loan that they pay back at the end of the year.
Wouldn’t you rather have that extra money throughout the year instead?
You can hang onto that money as you are paid by allocating the appropriate amount of taxes. Your tax returns should be in the low hundreds. You won’t get that extra payday, but you are less likely to have the small return taken away after filing bankruptcy.
Chapter 13 Bankruptcy
There are some exceptions to the rule. Depending on how you filed bankruptcy, you may be able to keep most or all of your tax returns. Check with your bankruptcy lawyers or give us a call today and we’ll help you hang onto those assets.