As tax time approaches, it’s the perfect time to think about how you can make good financial decisions. For someone who’s pursuing Chapter 7 bankruptcy, this is especially important.
Chapter 7 bankruptcies are liquidation bankruptcies, meaning non-exempt assets can be liquidated to pay your creditors back something. One of the most common assets that bankruptcy trustees seize is your tax refund. Many people don’t realize this is going to happen until it’s already too late.
At Sawin & Shea, we want you to know about a few bankruptcy strategies you can use to keep as much of your tax refund as possible through the bankruptcy process. We can help you maximize the benefits of your tax refund money.
The Timing Matters for Your Bankruptcy Tax Strategy
First, we would encourage you to think about the timing of your bankruptcy as it relates to filing your taxes. It is important to handle things as efficiently as possible.
If you can wait to file for bankruptcy until you actually receive and spend your tax refund reasonably, that is the best-case scenario. This means you gain the benefits of your tax refund money while keeping it out of reach of the bankruptcy trustee. It is a completely legal and effective option.
Your bankruptcy attorney can help you handle this process and ensure you time things correctly. You can even wait until you receive your tax refund and then use it to pay your attorney’s fees and court costs associated with filing for bankruptcy.
This means you maximize the benefits of your refund while using it wisely to get rid of a lot of other debt. When all is said and done, you’ve used your tax money to fund your bankruptcy and you have as much of a clean slate as possible in your situation.
Talk to Your Lawyer About Your Expenditures
Make sure you have an honest conversation with your bankruptcy attorney about your household expenditures and the purchases you’ll need to make during and after the bankruptcy period. If you’re desperately trying to get caught up on rent, need to buy school clothes for your kids, or have been putting off a car repair, mention it.
Your attorney can help you factor in these costs as you plan your bankruptcy. If you have balances of funds left over after you pay attorney fees and court fees, you can plan to spend that tax refund money on the essential things your family needs.
Garnishments, Credits, and Exemptions Impact Your Strategy
Perhaps you can’t wait to file for bankruptcy because you have a repossession pending or a garnishment that’s about to hit your paycheck. Again, make sure you tell your bankruptcy attorney about these critical factors.
We can talk to you about your tax refund and how a repossession or garnishment could impact it. We will also help you look for ways to hang on to a portion of your tax refund rather than watch it all go toward your old debts. You may qualify for certain exemptions and credits that protect your money.
For example, if you must file your bankruptcy before you receive your tax refund and you receive the earned income credit, you’d be able to keep that portion of your tax refund. Some of the tax refund would be used by the trustee to help pay your creditors, but not necessarily all of it. This leaves you in a better financial position.
As you can see, a little legal knowledge goes a long way when it comes to bankruptcy and tax issues. Do not let your tax refund dollars go down the drain before contacting an experienced bankruptcy attorney.
Call us today for a free consultation. We would be happy to go through all of these strategies and help you plan to get the biggest bang for your refund buck.
Sawin & Shea—Indianapolis Bankruptcy Attorneys
Filing for bankruptcy is not the end. It’s the beginning of a new financial life for you. The Indiana bankruptcy attorneys at Sawin & Shea can help you get rid of overwhelming debt and advise you on life after bankruptcy. We are here for you during this life-changing process.
Please do not hesitate to call us today at (317) 759-1483 or send an email for a free consultation. We are ready to help.
Video Transcript:
Hello, my name is Andrew Sawin. I’m one of the attorneys at Sawin and Shea. I want to talk to you a little bit today about tax refunds. This time of year, we start really thinking about tax refunds and how bankruptcy affects them, and what we can do to help you utilize your tax refund in the most efficient manner. Chapter seven bankruptcies are liquidation bankruptcies, and one of the most common assets that chapter seven bankruptcy trustees seize and use for the benefit of your creditors are tax refunds.
We want you to know about a few strategies you can use to maximize the benefit of your tax refund money. If you can wait to file a bankruptcy until you actually receive and spend your tax refund reasonably, that is the best case scenario. If we can wait and use your tax refund to pay attorney fees and court costs associated with filing a bankruptcy, you maximize the benefit of that refund by using it to get rid of a lot of other debt.
If you have balances of funds left over after you pay attorney fees and court fees, you can spend those reasonably on things you need, like getting caught up on rent and buying clothes for your kids, car repairs, things along those lines. We need to talk to you about those things in that kind of planning though. If you can’t wait to file a bankruptcy, if you have a repossession pending, or a garnishment going on, we can talk to you about your tax refund and what to expect with it. If you have to file a bankruptcy before you receive your tax refund, and you receive earned income credit, you’d be able to hang on to that portion of your tax refund, but some of the tax refund would be used by the trustee in order to help pay your creditors back something, but it’s best to go into a bankruptcy knowing these things.
Call us today for a free consultation. We’d be happy to go through all these things and help you plan to get the biggest bang for your refund buck. Thank you.
