Chapter 7 Bankruptcy and Tax Refunds: Beware !

Posted on January 15, 2013. Filed under: Chapter 7 Bankruptcy |

It’s that time of year for tax refunds.  We have questions from folks as to whether they can file Chapter 7 bankruptcy and still keep their tax refunds coming to them after they file bankruptcy or received right before filing bankruptcy.

The answer is that they generally can keep their refunds, depending, of course, on how large the refund is.  The general bankruptcy exemptions available under the federal bankruptcy exemptions (which we can use in Kentucky) are usually large enough to protect most tax refunds from being lost to the trustee. 

Also, if you are thinking about filing bankruptcy, and are going to use your tax refund to pay off a debt to a family member or creditor prior to filing bankruptcy, you should consult with a bankruptcy attorney before doing that.  There are provisions in the bankruptcy law which may allow the trustee to take that money back from the family member or creditor should you then file bankruptcy after paying them.  Alternatively, if you just keep the refund and don’t pay any of it to anyone, then the refund may be able to be protected with the exemptions as outlined above.

 

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