Will I lose my tax refund if I file bankruptcy?

As many of us file our tax returns, some of you may be receiving a tax refund. These refunds often come in handy as they are used for household necessities, property taxes, and debts that require attention. But if you have a bankruptcy looming, will you be able to keep your refund?

If you are planning on filing for bankruptcy and are expecting a tax refund, your tax refund may be counted as an asset in bankruptcy cases, depending on whether your refund was earned before or after filing. In most Chapter 7 cases, debtors in bankruptcy are able to keep their entire tax refunds in Tennessee. In Chapter 13 cases, the Chapter 13 Trustee typically allows the debtor to keep a portion of their tax refund in this jurisdiction.

Talk to an attorney for more information on your particular case.

When Can I Keep My Tax Refund?

Tax refunds on income earned before filing bankruptcy could be subject to the bankruptcy estate, while tax refunds earned after your bankruptcy can be yours to keep.

  • Refunds received for income earned in the tax year before filing bankruptcy will go to the bankruptcy estate.
  • Refunds received for income earned in the tax year after filing bankruptcy, you can keep the full refund.

If the refund is in your bank account at the time you file your bankruptcy, it is likely going to be included in your bankruptcy and be used to pay your creditors. An attorney can review your situation and advise you on whether you can keep your refund and strategies to help you plan accordingly to protect your refund.

How To Protect My Tax Refund from Bankruptcy?

There are several strategies that you can use to avoid losing your tax refund to a bankruptcy case:

  • Spend the refund on necessary expenses such as paying your mortgage, food, medical care, clothing, car payments, utilities, etc. 
  • Use a bankruptcy exemption to claim it as an exempt asset.
  • Contribute the funds to retirement

If you have any questions about your bankruptcy, contact our experienced team at The Law Offices of Mayer & Newton. 

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