How to protect your tax refund in Bankruptcy. Written by Shayenne Gamboa

Timing is very important when filing for bankruptcy. One of the factors to consider when asking "when is a good time to file for bankruptcy?" is whether or not you anticipate receiving a tax refund. Debtors who usually receive refunds file for bankruptcy AFTER they receive their refund so that the bankruptcy court will not take the refund and distribute it to you creditors. If the the debtor has exemptions that will cover the amount of the refund than it would not matter what time the debtor files for bankruptcy. If you file for bankruptcy before you receive your refund, the bankruptcy has the right to take your refund that is not exempted. The worst situation that can happen is not telling your attorney you filed taxes after you filed for bankruptcy and then you received a refund that you used. Because the refund is received after filing bankruptcy, the debtor must find a way to return that money to the Trustee or else the bankruptcy will not be discharged. The dismissal of the case in turn will prevent you from being able to file bankruptcy within the next 8 years if it is a Chapter 7 bankruptcy. You would have also wasted the fees you paid the attorney, the court filing fee, and the credit counseling fees.
The best thing to do regarding tax refunds is to file taxes before you file and receive the tax refund before you file for bankruptcy.

Please note that this is general information regarding tax refunds and bankruptcy. Other factors must be considered when filing. If you have any further questions, please do not hesitate to contact our office for a free consultation.