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How Do I Make Sure I Can Keep My Tax Refund If I File For Bankruptcy?

The answer to this question depends upon which chapter of bankruptcy you file. Because the rules are quite different between the two main chapters, it makes sense to give a complete answer for both scenarios.

When you file a St. Louis Chapter 7 bankruptcy, it is necessary to disclose all property (real or personal) that you own (or will come into ownership very soon). In other words, you must make the Trustee aware of all the things that you are in possession of (or will be). This would include any real estate that you own, cars, trucks, boats, and mobile homes. All personal property, like furniture, appliances, stocks, bonds, and bank accounts. But also things like monies you expect to receive from an inheritance, divorce settlement, personal injury suit, workman’s compensation case, or a tax refund. The reason why all of this information must be disclosed is because the Trustee has the right to determine whether or not these things have enough value to liquidate. Of course, the government provides you with a number of exemptions in order to cover (or eliminate) any equity that may exist (your attorney should be able to sufficiently explain this to you how this works, but there are several blog entries on this site that describe how bankruptcy exemptions work). But if you anticipate a large tax refund, and it is getting towards the end of the year (like November or December), then it may be in your best interest to hold off on filing the Missouri Chapter 7 until you’ve had a chance to get your tax refund and spend it (you will want to make sure that you spend the refund on things that you need and/or can justify, because the Trustee will surely ask you where the money went). This would mean filing a bankruptcy in either January or February (depending on how long it takes you to do your taxes). Because otherwise, the Trustee is going to want to take the refund and spread it out to your creditors.

In a St. Louis Chapter 13 bankruptcy, things are a little bit different. A Missouri Chapter 13 is described as a repayment plan over the course of three to five years in which certain creditors are paid back. A monthly amount of money is paid each month to the Trustee, who then disperses the funds to the various creditors listed in your plan. The rules governing tax refunds in a Chapter 13 are as follows: if you receive a refund while you are inside the 13, you get to keep up to $600.00 of the total federal and state income tax refund. The rest would have to be sent to the Trustee to be distributed to the creditors. Of course, if you are used to getting a large refund at the end of the year, you can always adjust your withholdings such that you don’t end up receiving anything so large in the future. People tend to believe that the tax refund is like ‘extra free’ money that the government gives them once a year; but in reality, it is simply a refund of too much money being taken out of each paycheck. If you make a couple of adjustments to your withholdings, you would then receive a lesser refund, but you would enjoy a much larger paycheck.

The affordable St. Louis bankruptcy lawyers at Brinkman & Alter, LLC have been assisting people for years with their debts and financial issues. Our goal is to make sure that you receive the fresh start / clean slate that you deserve, and to get you on the road towards financial freedom.