Chapter 7 Bankruptcy Timing: Is Your Tax Refund Safe in 2026?

For consumer bankruptcy debtors, February isn’t just the month of Valentine’s Day; it is the month when the “asset” they care about most, their federal tax refund. But when it comes to bankruptcy, that tax refund might never be seen.

If you are filing for Chapter 7 bankruptcy right now, you may have already noticed that Trustees are surprisingly proactive when it comes to tax refunds. In many districts, including several here in Florida, Trustees begin asking about your 2025 tax returns as early as November or December. Why? Because under the Bankruptcy Code, even an unfiled refund is considered “property of the estate” to the extent it was earned before you filed your petition.

By Alexander Hernandez, J.D., Professor, and Author of Consumer Bankruptcy Law (Routledge).

Key Takeaways: Protecting Your Tax Refund in 2026

If you are filing a Chapter 7 bankruptcy during the 2026 tax season, keep these issues in mind to protect your refund from the bankruptcy trustee:

• Timing is Everything: Your tax refund is considered “property of the bankruptcy estate” even if you haven’t received it. Bankruptcy Trustees routinely ask about tax refunds as early as November or December.
• The CTC vs. EIC Distinction: Do not assume all “child-related” credits are safe. While the Earned Income Credit (EIC) may offer protection, the Child Tax Credit (CTC) is frequently treated as a non-exempt tax overpayment unless there is a specific state exemption.
• Schedule C of the Bankruptcy Petition: You must disclose the anticipated refund on Schedule B and claim your exemptions on Schedule C. An unlisted refund is an unprotected refund, and failing to disclose it can lead to the Trustee denying your discharge under 11 U.S.C. §727.

Know Your State’s Exemption: Each State is Different

In my book, Consumer Bankruptcy Law, I discuss how, under the Bankruptcy Code, states can opt out of the federal exemptions and adopt their own, such as Florida. Some states allow the choice between state or federal exemptions. That’s why it is critical to know your state’s exemptions when it comes to tax refunds. Florida is a prime example.

Unlike some states that offer a dedicated “Tax Refund Exemption,” Florida treats your refund as general personal property that is listed on Schedule A/B of the petition.

The $1,000 Threshold: Under the Florida Constitution, you are generally allowed only $1,000 in personal property exemptions if you own a home. If your refund, furniture, and electronics combined exceed exemption limits, that refund is in the Trustee’s crosshairs, and a portion may be non-exempt.

The “Wildcard” Lifeline: If you do not claim a homestead exemption in Florida since you are a renter, you can claim an additional $4,000 wildcard exemption. This is often the only way a Florida debtor can protect a large refund.

Professor’s Note: Remember to review the exemptions of your state to confirm if there are tax refund exemptions in your state.

The “Child Tax Credit” vs. “Earned Income Credit” Trap

One of the most frequent concerns I hear from bankruptcy clients involves the Child Tax Credit (CTC). There is a common misconception that because the CTC is intended for the support of children, it is automatically “off-limits” to the Bankruptcy Trustee.

In reality, the legal protection of your refund depends entirely on how your state categorizes these specific credits. It is essential to distinguish between the Earned Income Credit (EIC) and the CTC:

The EIC Advantage: In many jurisdictions, the Earned Income Credit is treated as a “public assistance benefit.” Because of this state classification, it is often fully or partially exempt under state statutes designed to protect social safety net payments.

The CTC and Tax Overpayment: The Child Tax Credit is frequently viewed by Trustees not as “public assistance,” but as a standard tax overpayment. Unless your specific state has a statute that explicitly protects the CTC or you have enough “Wildcard Exemption” space to cover it, the Trustee may successfully argue that this money belongs to your creditors, not your household.

Professor’s Note: If you are filing in a state with a limited wildcard exemption, the CTC can be targeted as early as November or December. To protect it, you must accurately disclose the anticipated credit on Schedule B and affirmatively claim the exemption on Schedule C. Failing to categorize these credits correctly is one of the fastest ways to lose a refund you were counting on for post-bankruptcy stability.

Professor’s Note: Always check if your refund includes the Earned Income Credit. In Florida, the EIC is generally protected regardless of your other assets, as it is viewed as a public assistance benefit.

The Strategy of Time: One simple strategy is to simply delay filing during tax season and use those funds to cover your household expenses.

The Bankruptcy Petition: Schedule B and C

You cannot simply “hide” the tax refund and hope the Trustee doesn’t notice. The trustee will request the last 2 to 3 years of your tax returns as part of their document request, and not filing your tax returns only means the trustee will delay your bankruptcy case. So don’t prejudice yourself against a denial of your discharge under 11 U.S.C. §727.

Schedule B: The anticipated refund must be listed as an asset (even if you haven’t received the check yet).

Schedule C: This is critical! You must explicitly list the refund and cite the correct statute or constitutional provision to “exempt” it.

If you fail to list it on Schedule C, you are essentially handing the Trustee a gift-wrapped check for your creditors.

The Professor’s Conclusion

To wrap up my first series on bankruptcy and the 2026 tax season, remember that a bankruptcy discharge is designed to provide a “fresh start,” but when to file is just as important as completing the forms correctly.

Whether you are relying on a wildcard exemption, the Earned Income Credit or the Child Tax Credit, the goal is to protect your assets.

Colleges and universities can purchase my bankruptcy law textbook directly from Routledge Publishing. Paralegals and students who are buying single copies can do so via Amazon Books. To access my YouTube channel, click this link.

You can learn more about filing for bankruptcy and the bankruptcy petition via this link. Information on the bankruptcy court system, contact information for trustees, and your state’s exemptions can be found here. The federal bankruptcy exemptions are listed here. The latest version of the 341 Meeting of the Creditors can be found here.

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