As tax filing deadlines approach, many debtors who are filing for bankruptcy may wonder what will happen to their tax refund. Will they lose their refund to creditors? Are they considered exempt in bankruptcy? The answers to these questions will depend on a variety of factors, including what type of bankruptcy you file and when you file.
To discuss your unique situation, contact the Law Office of Robert W. Kovacs, Jr. Our Worcester bankruptcy attorney has extensive experience helping clients effectively resolve their debts. We can evaluate your financial situation and create a customized solution that is in your best interests.
How Tax Refunds Are Handled in Bankruptcy
Your tax refunds are counted as a part of your assets, whether you have already received it or expect to receive it later on. When you file for bankruptcy, the trustee can use your refund to repay creditors. But it is also possible to claim your income tax refund as an exempt asset, which means that you get to keep your refund up until the state or federal exemption amount allowed.
In most Massachusetts bankruptcy cases, debtors are often able to keep their entire tax refund, even if they file for Chapter 7 or Chapter 13 bankruptcy.
Early Planning Can Protect Your Tax Refunds
Preparing and planning ahead is key to protecting your tax refund from creditors. From managing the timing of your bankruptcy filing to being cautious of how you spend your tax refund, these are just a few things to consider when planning your tax refund.
Some strategies that can be used to protect creditors from getting your tax refund:
- Spending your tax refund on necessary expenses, such as household expenses, medical expenses, clothing, etc.
- Adjusting your tax withholdings to minimize your refund
- Including your tax refund as a bankruptcy exemption
Consult with an experienced Worcester bankruptcy lawyer to learn more about how you can safeguard your tax refunds and your eligibility for bankruptcy exemptions. The Law Office of Robert W. Kovacs, Jr. provides free consultations so you can understand your options and your rights at no cost.