It’s that time of year again. People are filing their taxes and, quite possibly, anticipating refund checks. However, if you’ve recently filed for bankruptcy, or are in the process of filing, you may be wondering whether or not you’ll get to keep your refund.
Under Chapter 7 protection, your income taxes are considered part of your bankruptcy estate. Your tax return is part of your bankruptcy estate, which means that your Chapter 7 bankruptcy trustee will have control of your tax return. Just like your car, your house and your bank account, your tax return is considered an asset. The refund is an asset which your trustee may use to pay some unsecured debts.
That being said, whether you get to keep your refund money depends on when you filed for bankruptcy. An experienced bankruptcy lawyer can advise you about how timing will play a role in your ability to keep your tax refund.
What Can You Do to Keep Your Money?
Spend the money on necessities (if you received the money before filing for bankruptcy): These include utilities, car payment, mortgage, food, medical care, education and clothing. Keep records.
Adjust tax withholdings: If you know early on that you are planning to file for bankruptcy, you can adjust your withholdings to reduce the amount of taxes paid and maximize your weekly income. This will likely produce a negligible refund, which your bankruptcy trustee may just disregard, allowing you to keep the small amount of money. Just make sure you withhold enough so you don’t end up owing taxes.
Exemption: Every debtor has the right to keep a certain amount of property, regardless of how much he or she owes. The amount you are allowed to withhold varies by state.
If you’re looking to hold onto all or some of your income tax refund, the best thing you can do is consult with a bankruptcy attorney familiar with the laws and regulations in South Jersey.
Joel R. Spivack, Esq. has been fighting for the rights of New Jersey residents in bankruptcy protection filings for nearly 25 years. Contact the Law Office of Joel R. Spivack today for a free consultation. Call 866-488-2196.