You may have done your due diligence in paying your income taxes throughout the year and filed an income tax return on time. So you may feel as though you deserve to benefit from your tax refund if you have been calculated to have overpaid the government. This check may seem especially pivotal during your current financial crisis. However, before you hastily spend these funds, please continue reading to learn whether you are permitted to keep your tax refund in the middle of your Chapter 7 or Chapter 13 bankruptcy and how an experienced Rockland County bankruptcy attorney at The Law Offices of Allen A. Kolber, Esq., P.C., can help you handle these funds properly.
Can I keep my tax refund in my Chapter 7 or Chapter 13 bankruptcy?
Your tax refund may be handled slightly differently depending on whether you have filed for Chapter 7 or Chapter 13 bankruptcy. For the former, your tax refund and all your non-exempt assets become part of your bankruptcy estate. This is to say that your appointed bankruptcy trustee may use whatever is included in your estate to repay your outstanding creditors. For the latter, you may be expected to turn over your tax refund each year you are actively working through your court-ordered repayment plan, which may be anywhere from three to five years.
Of note, though, there may be certain exemptions you can apply to your tax refund. In a Chapter 7 bankruptcy, you may claim the wildcard exemption, which may protect up to $1,475 in any type of property, plus any unused portion of your homestead exemption up to a total of $13,950. In a Chapter 13 bankruptcy, you may negotiate with the New York State Bankruptcy Court to consider your tax refund as necessary to retain for emergencies or family needs.
Why is the timing of my tax refund and bankruptcy filing important?
The timing of when you receive your tax refund versus when you file for bankruptcy may prove pivotal. Generally speaking, anything received after your bankruptcy filing must not be touched until you get explicit permission from your appointed bankruptcy trustee or the New York State Bankruptcy Court.
So, if you receive your tax refund first, you must disclose it in your bankruptcy petition. From here, your trustee may use their discretion to determine whether it is exempt or must be used to repay creditors. Now, a failure to disclose may land you in serious trouble with the court, as they may order the removal of your debt discharge, the dismissal of your case, hefty fines, etc.
What’s worse is if you use these funds on luxury expenses (i.e., high-value personal items, vacations, etc.) rather than necessary expenses for you and your family (i.e., food, rent, utilities, etc). Here, the court is more than likely to accuse you of bankruptcy fraud or preferential transfers and criminally prosecute you for such.
No matter what specific bankruptcy matter you are currently dealing with, a skilled Rockland County bankruptcy attorney from The Law Offices of Allen A. Kolber, Esq., P.C., is willing and able to step in and facilitate the process. Retain our legal services today.
