Can I Keep My Tax Refund If I File For Bankruptcy?

As with most situations, this question depends largely on which chapter of bankruptcy you file for. There are different implications involved when you file a Missouri Chapter 7 or a Missouri Chapter 13. Ultimately, if the bankruptcy Trustee decides that he is interested in your tax refund, he/she will demand that you turn it over.

In a St. Louis Chapter 7 bankruptcy, it depends upon when you receive the refund itself. So for example, if you file a Chapter 7 in February, and you have not yet received the tax refund, then there is certainly a good chance that the Chapter 7 Trustee is going to want the money (unless the refund is relatively small, say $800 or less, then he/she will more than likely pass on it). Or if it is December, and you have not yet filed your taxes, but you expect a large refund, then the Trustee is likely to demand turnover. But if you have already spent the refund, and enough time has passed since you initially received it, then it won’t make any difference, because there wouldn’t be anything to turnover.

In a St. Louis Chapter 13 bankruptcy, the Chapter 13 Trustee will expect you to turnover anything above $600 in a tax refund during the time you are in the repayment plan. So for example, if it is the second year you are inside the Chapter 13, and you receive a $1,300 tax refund, the Trustee will demand that you turnover $700 of it ($1,300 – $600 = $700). The $600 is yours to keep for whatever you wish.

Making sure that you understand the implications of a tax refund can be crucial in filing a proper St. Louis bankruptcy. We have seen several cases fail because individuals did not turnover a refund in a timely fashion, either because they did not understand how the process worked, or because their attorney did not make them aware of the rules.

This is why it is vitally important to hire an attorney with experience and knowledge in this very specialized area of law. The St. Louis bankruptcy attorneys at The Bankruptcy Company have been practicing bankruptcy for over 10 years, and guide you toward financial recovery. Our staff is eager to set up a time for you come and talk with us, and all our phone and office consultations are free of charge.