When it comes to bankruptcy in California, many people are concerned about protecting their tax refunds. Because bankruptcy trustees can seize tax refunds to pay back one’s creditors, this is a reasonable concern.
Fortunately, the good news is that there are certain measures that you can take to make sure your tax refund stays safe. Under California law, all debtors filing for bankruptcy have access to a set of bankruptcy exemptions that can allow them to protect certain assets from creditors, which can include your tax refund.
California’s Wildcard Exemption for Bankruptcy
If protecting your tax refund is essential, you’ll probably want to look into California’s wildcard exemption. This is a category of exemptions available under the 703 Exemption Series, which includes exemptions for home equity, a vehicle, household items, tools of one’s trade, and other categories.
The wildcard exception allows debtors to protect up to $1,700 in any asset – including a tax refund – but that’s not necessarily the limit. Any unused amount of the $33,650 homestead exemption in the 703 Series may be applied toward the wildcard exemption. This means that someone with no home equity they wish to protect can apply the full value of the homestead exemption toward their wildcard exemption.
Alternative Ways to Protect Your Tax Refund
You may own a significant amount of home equity; in which case, you may wish to protect up to $678,378 of equity by claiming the homestead exemption in the 704 Exemption Series. This series, however, doesn’t have a wildcard exemption – but there are other ways you can protect a tax refund.
One of these ways is to file for Chapter 7 bankruptcy after you’ve already received your refund. As long as you avoid using this money for luxury expenses, you can use it to afford basic necessities to help you get by before filing for bankruptcy. It’s best to consult with a bankruptcy attorney before using your tax refund to ensure your intended expenses won’t adversely affect your bankruptcy case.
You can also adjust your tax withholding to reduce your tax refund before it ever comes. This means you’ll get more money in your paychecks that you can use to afford necessary expenses or pay down your debts, but there’s always the risk of ending up with a tax bill if you claim too many allowances.
Contact Us for Legal Guidance
For all bankruptcy-related matters, you can turn to our experienced bankruptcy attorney at Nguyen Law Group for help. Attorney Andy Nguyen has many years of experience serving his clients with a high success rate. By reaching out to us for help, you can have a better chance of getting the best possible outcome for your bankruptcy-related matter.