What happens to your tax refund in bankruptcy?
The people who file for bankruptcy during tax season always ask us what happens to their tax refund. Does they still get it, or is it lost?
Most of the time, if you’re in Chapter 7 bankruptcy, you’re able to protect your tax refund. Unfortunately for those in Chapter 13, saving your refund isn’t as likely.
Tax refunds and Chapter 7 Bankruptcy
When you file for Chapter 7 bankruptcy, your tax refund is considered an asset – whether you’re received it or not. Just like your other assets, if your tax refund is “exempt,” it can’t be touched by the trustee. The amount of your refund that’s exempt will very from state to state, depending on the state allowed amounts. You might even be able to use the wildcard exemption (which can be used to protect any asset) if your state doesn’t have laws regarding the exemption of tax refunds.
Filing for Chapter 7 bankruptcy is arguably the best plan for eliminating debt. It can wash away certain types of debt for good, cleanse you of your stress and financial worries, and free up income for your family. Best of all, it can give you a fresh start to rebuild your credit.