Tax season is an eagerly-anticipated time of year for many individuals and families – a period where the government returns financial contributions made over the last twelve months. However, filing for bankruptcy can make it challenging to receive a refund, so it's essential to know when considering this option. If you're eligible and plan on filing for bankruptcy, read further as we cover ways to protect your tax refund while going through this complex process.
Understanding the Basics of Bankruptcy and Tax Refunds
The bankruptcy process can be a delicate and intimidating task. However, understanding the basics of bankruptcy and tax refunds can help individuals and families protect their refunds during the process. It's essential to know all options available before filing, as strategic filing could improve the outcome of one's refund. For example, filing with Chapter 7 eliminates wage garnishment, while Chapter 13 prevents liquidation.
Consumers should also consider who has access to their tax returns when deciding how to declare income on their taxes or apply for refunds. Depending on their current financial situation, consumers may have a better chance of maintaining full access to their refunds if they know the IRS's and federal regulations' standard rules.
What Is an Exempt Tax Refund and How Does It Work in Bankruptcy Cases
Knowing what is and isn't exempt in filing a bankruptcy case is essential to keeping your bank account safe. An exempt tax refund can provide protection when filing, as it is designed to keep a specific portion of your refund secured from the effects of bankruptcy proceedings. Generally, state law or the bankruptcy code allows you to protect or "exempt" a certain amount of value from creditors who may try to collect on numerous outstanding debts owed during this time.
When filing for bankruptcy, you must show that all money received from a tax refund was exempt, meaning it was not part of the estate for distribution as part of debt repayment for creditors. This protection gives you added peace of mind during a difficult financial transition.
When To Seek Professional Legal Advice on Protecting Your Tax Refund
Taxes can be complicated, and filing for bankruptcy further complicates the situation. One can take specific steps to protect their refund during this process, so knowing when to seek professional legal advice is essential. Most importantly, filing taxes promptly and accurately is necessary, despite bankruptcy proceedings.
Obtaining proper legal advice is critical in ensuring any refunds secured during bankruptcy are protected and retained. Let The Law Offices Of Mayer & Newton be there for you during this time. Contact us online or by phone to learn more. (865) 328-7993