• Redd Law, PLC

Tax Refunds in Bankruptcy: To Keep or Not to Keep

At the end of the year, many people start thinking about their tax refunds. As a result, they are often concerned about whether filing a bankruptcy petition may affect those refunds. Will they get the refunds or will the court or bankruptcy trustee take them?

Generally, in a Chapter 7 bankruptcy, most people get to keep their income tax refunds. However, the anticipated refunds must be listed as an asset and exempted in the bankruptcy schedules. This is important even if you haven’t prepared your tax return and don’t know exactly how much your tax refund will be. I’ll often look at my clients’ most recent tax return to determine how much they may recent on the next one if they will earn about the same amount of money.

What happens if tax refunds are not disclosed in a Chapter bankruptcy petition? Failing to disclose the refunds may result in the trustee taking them for the creditors. The trustee will simply send a letter to the IRS requesting that the refunds be turned over.

In a Chapter 13 bankruptcy, most debtors are required to contribute tax refunds toward their Chapter 13 payment plan. In Detroit, the Chapter 13 trustees have the debtors sign a form so that the federal tax refunds can be sent directly to the trustees. However, Chapter 13 debtors may be allowed to keep their refunds if they need them for an emergency or important expense that isn’t already included in their budget. Chapter 13 debtors who want to keep their tax refund should contact their attorney for guidance before filing their tax returns.

0 views0 comments

Recent Posts

See All

Free Bankruptcy Evaluation

Redd Law, PLC is excited to offer bankruptcy clients the opportunity to submit information to our firm using Lexria. In order to file bankruptcy, clients must provide significant financial information

Change to Michigan Wage Garnishment Law

Wage garnishments in Michigan used to have a 182 day expiration date regardless of whether the judgment was paid in full. Creditors had to submit a new request to the court and pay a new fee in order