How to Protect Your Tax Refund from Bankruptcy

When filing for bankruptcy, an attorney should be consulted to deal with all aspects of your Chapter 13 or Chapter 7 filing, because there are many exigencies that the average consumer simply will not consider.  One of the most common is the status of their tax refunds.  If done properly, an attorney can help you use your tax return for bankruptcy fees with the appropriate amount of pre bankruptcy planning taking place beforehand.

Are Tax Returns Exempt Bankruptcy Assets?

It depends.  First, the most important action to ensure you can use your tax return for bankruptcy fees is mentioning to your attorney that you are expecting a tax return.  Pre-bankruptcy planning almost always produces favorable outcomes, and if not done, your tax returns are not exempt in most cases.  Each state has laws regarding dollar amounts, which if under, your tax return may be earmarked for being exempt.  Additionally, return monies related to childcare or other forms of earned income may also prove exempt in most cases.  However, these benefits may not be expected, because, a bankruptcy trustee can simply consult with the IRS regarding your return status, and request that your tax returns are not exempt.

Spending Tax Returns before Filing for Bankruptcy

In most bankruptcy cases, spending a tax return amount on bankruptcy legal fees before actually filing the bankruptcy is the best method of saving these funds.  Buying assets, which can later be resold by a bankruptcy trustee, is not going to be beneficial to individual debtors.  Again, there are some legal considerations to be made before using your tax returns for bankruptcy fees, which an attorney can help you determine.

Getting Legal Help from a Bankruptcy Attorney

All bankruptcy cases are unique, and therefore, your tax return status may not even prove worthwhile for a bankruptcy trustee to collect.  However, if you feel that your tax return amount is sufficient to warrant protection, having an attorney dictate how to use these assets wisely, and most importantly, legally is the best solution.