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As another year’s deadline for filing your taxes comes and goes, there are important considerations that need to be made. These considerations are especially true if you are considering bankruptcy or have already applied for bankruptcy protection. Here is what you need to know about tax refunds and bankruptcy.

Tax Refunds and Bankruptcy

When a person files for bankruptcy protection, all of their assets become a part of what is known as the “bankruptcy estate”. This estate is under the management of an appointed trustee, who is responsible for representing the bankrupted individual to creditors, collecting assets, and liquidating those assets to satisfy the debts to creditors.

tax refund and bankruptcyUnder bankruptcy law, a tax refund is considered part of the bankruptcy estate. This rule covers the income tax refunds for the period prior to the bankruptcy (should it not be refunded yet), as well as the year of the bankruptcy. Tax refunds are treated thusly because they are considered in the same manner as cash or bank accounts. In the year of your filing, however, the tax refund may be partially returned to you, based upon the date of the filing for bankruptcy protection. For the years after you have filed for bankruptcy, you usually are allowed to keep your entire refund, as this money was not included on the original filing.  

Tax Refunds in Chapter 7 Bankruptcy

If you have yet to file for bankruptcy, but are concerned about what will happen to your refund if you seek bankruptcy protection, the easiest way to keep your refund is to wait until you receive it and then spend it before filing for bankruptcy.  There are a variety of expenses you can use your refund for which will not then be included in the bankruptcy estate. These expenses include:

  • Rent
  • Mortgage
  • HOA dues or fees
  • Utilities
  • Food
  • Clothing
  • Insurance
  • Medical expenses
  • Educational expenses
  • Home or vehicle maintenance
  • Vehicle payments

Tax Refunds in Chapter 13 Bankruptcy

Under Chapter 13 bankruptcy, tax refunds are under the control of the trustee for the life of the bankruptcy plan. This means that refunds are under the discretion of the trustee. If a plan requires complete repayment to creditors, all tax refunds will be withheld by the trustee. If, however, the plan does not require the complete repayment to all creditors, part or all of the refund may be returned to you, depending on the circumstances and the discretion of the trustee.

If you are concerned about whether an expense will be protected from seizure by creditors after bankruptcy, you should consult with an experienced bankruptcy attorney.

Contact an Experienced Florida Bankruptcy Attorney Today

If you are considering bankruptcy but have questions about your refund – or any other issue – contact Patrick Cordero today. The Law Offices of Patrick L. Cordero are proud to be Florida’s largest bankruptcy firm. We offer personalized attention to all clients and understand that every situation is unique.

Trust the Lawyer of the Decade, the Minority Lawyer of the Year, and the Largest Bankruptcy Firm in Florida, and they’ll work towards the best possible financial outcome for your case. Trust in the experienced and passionate legal team at The Law Offices of Patrick L. Cordero to help you. Call us today at (305) 445-4855.