Many people rely on their tax returns each year to make important purchases or stay financially afloat. If you are already entering a shaky financial situation that requires a Chapter 7 bankruptcy filing, what can you expect will happen to your tax return? Is it going to stay in your bank account, or will it be lost to creditors and your bankruptcy situation?
Whether or not you will keep your tax return depends on when you received it and when you filed for bankruptcy.
If you filed for bankruptcy in the fiscal year after your tax return, then you should keep the full refund. If you filed for bankruptcy in the year before your bankruptcy, then the money will be part of your estate and subject to collection like other assets. If you filed for bankruptcy in the same year as your taxes, the amount will be split — what you earned before your filing is part of your estate, but what you earned after your filing is likely yours to keep.
Can You Spend Your Tax Refund If a Bankruptcy is Pending?
It might be tempting to spend your tax refund if you think it is going to be seized by creditors at some point during your bankruptcy anyway. However, you need to be extremely careful with how you use your tax refund. During bankruptcy, you need to show to the court that you are making an honest effort to get your finances under control. Spending your tax refund on items that could be considered superfluous or luxurious is not permitted.
You can spend your tax refund on necessary purchases, though. For example, you can use it towards mortgage payments, groceries, medical care, and so forth.
California Exemptions & Answers from Our Bankruptcy Attorney
It is worth noting that California has some of the most lenient bankruptcy exemptions out of all 50 states. In short, a bankruptcy exemption allows you to shield assets from the consequences of bankruptcy, such as collection, as long as they fall under a certain value or total value. California’s large exemptions let most people keep their refund, regardless of when it was filed. To be sure, though, consulting with an attorney is always a smart move.
At Nguyen Law Group in Rancho Cucamonga, we believe in the importance of making bankruptcy less intimidating for our clients through information and compassionate guidance. Led by Attorney Andy Nguyen, we are capable of handling any Chapter 7 or Chapter 13 bankruptcy case for you, acting as trusted guides from start to finish. We will also be happy to discuss loan modification, debt settlement, and foreclosure options with you as well. Everything we do is directed to make certain you are making the best decisions possible to get through bankruptcy.
Call (909) 328-6280 or contact us online when you need us. Our law firm offers appointments 7 days a week and flexible hours for your convenience.