Don’t Lose Your Tax Refund!
Did you know that you risk losing your tax refund if you file for bankruptcy? In this video, which is also available on my YouTube Channel, I discuss the issue of filing for bankruptcy during tax season and the risks of losing your refund to the trustee, who might take it to pay your creditors. I’ll also discuss the issue of bankruptcy lawyers who fail to mention the problem of losing a tax refund until it’s too late. The issues of exemptions are analyzed to protect your assets.
How Exemptions Work with Tax Refunds
I’ll also explain how to protect your tax refund regardless of the exemptions in your state. Remember that exemptions allow certain assets to be protected from bankruptcy. Exemptions vary by state. So it’s always important to learn the protections allowed by your state so that you know in advance what to expect and what would be protected when you file bankruptcy, whether Chapter 7 or Chapter 13. How exemptions work is easy enough to understand.
For example, suppose your state offers an exemption of $5,000 as the motor vehicle exemption. The balance on your car loan is $20,000, and your car is worth $35,000, so your car has $15,000 in equity. If you subtract the exemption from the equity, that leaves $10,000 in nonexempt equity. That is the portion that belongs to the bankruptcy estate. That portion has to be paid back to the trustee, who uses the funds to pay a portion to creditors. If you can’t afford to pay back the nonexempt equity, then the trustee will likely sell the vehicle to obtain the funds.
When it comes to tax refunds, not every state offers an exemption, so it just might be treated as personal property. So, tax refunds are an easy way to be over-exempt and easy pickings for the trustee. Sometimes, this means delaying the bankruptcy in order to keep the tax refund. However, if timing is an issue and you can’t delay filing for bankruptcy, you’ll weigh your options against wage garnishment to determine your best financial option.
I hope you enjoy the video, which you can see below, as well as on my YouTube Channel.
Colleges and universities can purchase my bankruptcy law textbook directly from Routledge Publishing. For paralegals and students buying single copies, you can do so via Amazon books. To access my YouTube channel, click this link.
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Remember that the information provided is for educational purposes. Always make sure to consult privately with a tax expert or bankruptcy attorney.
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