What is the bankruptcy code in regards to filing for chapter 7 & receiving a tax refund?
I had my hearing for chapter 7 my atty told me that up to something like 80% of my tax refund but atty won’t tell me if I’ll get it all back if no one files a claim or explain any further just says almost always a creditor files a claim.
Timing is very important when considering bankruptcy and during the tax season one aspect of timing is when to file in regard to when one will be receiving their tax refund. This is one of those fact driven determinations where no one answer can be given in a general post like this, so be sure to consult with an attorney about your particular situation. What is surprising to many, though, is that even though they have not yet received their refund check, it is an asset of a bankruptcy estate. This is because they have already earned the money prior to filing a Chapter 7. So, if one files a Chapter 7 today and then receives their refund next week, the trustee can take that money to distribute to creditors.
Here is where making a decision on filing gets a little more complicated. Each person has certain exemptions they can use to hold onto property and assets through a Chapter 7 bankruptcy. If you have sufficient left over exemptions to cover your tax refund, then it does not matter if you file before or after receiving it. However, if you do not have spare exemptions, but you still really need to file a Chapter 7 soon, then it would be best to try and get that refund before filing.
http://bankruptcy-info.we.bs/
Now, it becomes important to use that refund money carefully to keep from getting on the wrong side of the trustee or the bankruptcy code. The guiding idea is to use it for necessities for your family and NOT to pull one over on creditors. You cannot use it to buy luxury items (there is a specific dollar amount limit in the code) and you cannot use it to pay one creditor over others. You can use it to buy necessities. For example, stock up on food stuffs and if your clothes are getting threadbare, get a few items of clothing but be REASONABLE about it. If you have children, get them some school clothes if they actually need them. Do not get fancy clothes – just basic items. In doing this, you are basically converting non-exempt cash into exempt personal property. You could also use the refund to pay for the bankruptcy. AGAIN: Consult with an attorney regarding your particular situation and plan and do not blindly apply these general principles to your particular situation because there are limits to personal property or household items exemptions.
February 12th, 2010 at 7:33 amAny potential tax refund is just one more asset that potentially can be taken to offset your debts that are being discharged. Any assets over an above whatever your exemptions are will be taken to satisfy your debts. For many folks in bankruptcy the only liquid asset that they have is a pending tax refund and some or all of that can be taken. Your attorney can explain what is exempt and what can be taken so you really should be talking to him.
If you are filing bankruptcy you can bet your last nickel that every creditor carrying any unsecured debt will be filing a claim against your bankruptcy estate. If they don’t, they very quickly lose ALL right to recover anything on whatever you owe. There’s no way to say what will happen right now until your creditors have been given a chance to file their claims against your estate. That’s why the attorney can’t tell you much right now.
February 12th, 2010 at 7:33 am