This is the time of year when families across both Oregon and Washington are eagerly awaiting tax refunds. It is also a time when many of these same families are considering seeking the protection of the Bankruptcy Court. Unfortunately these goals, keeping the refund and getting bankruptcy protection, are often at odds in the state of Oregon.
First the good news. If any part of your refund is going to be Earned Income Credit, the portion that is EIC is completely protected; you keep it all. Also keep in mind that just because you currently live in Oregon doesn’t mean the Oregon exemptions apply. If you have lived here for less than two years, the Oregon exemptions most likely do not apply and, depending on the largess of your former home state, your refund may be protected in full. If, however, the Oregon exemptions do apply and you are expecting non-EIC refund money, some words of warning are in order.
Lets use the 2012 potential refund as an example. First, the trustee does not care that you really need the money. Second, the fact that you have not yet filed is not going to help. The Trustee is patient and will track on the fact that you are not filing until September. Ultimately, the best way for you to protect the 2012 refund is to file your return, get the refund and spend it in a reasonable and fully documented manner prior to filing bankruptcy. For example, pay off your attorney and filing fees prior to filing. You will obviously need to talk to your attorney about strategies regarding the way you spend down the refund before heading down that path. Additionally, if you want to save your EIC and spend down unprotected part of your refund, talk to your attorney about strategies for isolating the protected funds so that no portion of them can later be claimed by the trustee.
Beyond the issue of retaining your 2012 refund in bankruptcy, do keep in mind that the longer you wait in 2013 to file your bankruptcy, the larger the proportional share of your 2013 potential refund will be put at risk. Currently nearly twenty-five percent of 2013 has already gone by so count on losing twenty-five percent of your next refund and the percentages get worse with every month that goes by. Talk to your attorney about strategies for reducing your withholding before you file so that you don’t unnecessarily create asset an asset for the trustee to take away.
Finally, if you absolutely must file prior to getting your hands on your refund(you are getting garnished, property is in foreclosure, etc.) consider Chapter 13 Bankruptcy. Under certain circumstances, a Chapter 13 bankruptcy filer can often keep in upwards of $3000 of an upcoming refund without having to surrender it to the Chapter 13 Bankruptcy attorney. While the ability to retain a large part of a refund is rarely reason in and of itself to file Chapter 13, the advantage of doing so when coupled with other factors can argue for a Chapter 13 filing rather than Chapter 7.
Call the Northwest Debt Relief Law Firm today to go over strategies for filing bankruptcy and keeping your refund.