Prior to the client files for personal bankruptcy, the issue always pops up: Can One keep my tax refunds once i file? The reply is a simple “maybe.” This will depend on regardless if you are filing an instalment 7 or perhaps a Chapter 13 Bankruptcy personal bankruptcy. Tax refunds could be several 1000s of dollars and that i, like lots of people, start to determine what I will use it before I find yourself getting it.
Inside a Chapter Seven, tax refunds are a good thing even though you haven’t received the refund yet. Consider an anticipated refund like a future asset. Whenever you file your Petition and Schedules, you have to list all assets and property legal rights. Including that future tax refund that you are looking at using to obtain your vehicle fixed, vacation, or compensate for some bills.
When you list a good thing, you need to exempt it. In Michigan, we are able to use either Federal exemptions or Condition exemptions. Many people use Federal exemptions therefore we will too with this publish. Since there’s no specific exemption for safeguarding a tax refund we make use of the “wildcard” exemption to safeguard it also it usually covers all the refund. For instance, your refund for that prior year was $4,000.00. After this you file your situation in the finish of June. You’d schedule $2,000 in anticipated tax refunds then make use of your wildcard exemption to safeguard it entirely. Not too difficult.
What goes on if you can’t list the asset or exempt it entirely? This is a much simpler answer. You’ll lose it. The Trustee will require the refund, or even the non-exempt portion, sometimes from the government, and employ it to pay for creditors. The Trustee will not think hard about this. The Trustee might even keep the situation open until tax season to examine your tax statements after which seize the refunds. It takes place constantly to unwary filers and unskilled personal bankruptcy lawyers.