Chapter 7 bankruptcy is a difficult decision to make for anyone. You want to keep as much of your assets as you can, but you don’t want to be saddled with debts for the rest of your life. What about your income tax refund? Can you keep it when you’re going through Chapter 7 bankruptcy? The bankruptcy attorneys at Groce & DeArmon, P.C., explain.
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Short Answer: It Depends
When you file for Chapter 7 bankruptcy compared to when you receive your income tax refund determines what happens to the refund. If you file for bankruptcy first and then file your taxes a few weeks later, your refund may go to pay some of your debts. If you wait to file for bankruptcy after you receive your income tax refund, you might have more options available to you.
Your Tax Refund Is Listed as an Asset
Your income tax refund is listed as an asset when it comes to Chapter 7 bankruptcy. If you’ve filed for bankruptcy protection and you haven’t received your refund yet, the trustee will note that on the record. The trustee likely (but not always) will use the refund to pay some of your creditors who have unsecured debts. These include credit cards, installment loans, and medical bills.
What About Missouri’s Exemptions for Chapter 7 Bankruptcy?
In Missouri, there are exemptions for the assets a trustee can use to pay off your debts. An income tax refund or any assets in your bank accounts are not exempt from being taken in a bankruptcy case.
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Receiving Your Refund Before Filing for Chapter 7 Bankruptcy
What happens if you receive your income tax refund before you file for Chapter 7 bankruptcy? You have some options.
If your bank account has garnishments on it due to unsecured debts, consider choosing a paper check to receive your income tax refund. Selecting a paper check delays the refund process by several weeks. However, your chances of keeping that money increases.
Use your income tax refund to help pay for the Chapter 7 bankruptcy. Here at Groce & DeArmon, we offer a free initial consultation in addition to installment plans to pay for the legal expenses of filing for bankruptcy. You may elect to use some or all of your income tax refund to pay for your bankruptcy. We’ll discuss this option with you before you decide to do that, because it may not be the best course of action.
Pay into some of the exempted assets for Missouri. It may benefit you to put more equity into your home, vehicle, or tools you need for your work so that you have a chance to keep that property after filing for Chapter 7 bankruptcy.
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Bankruptcy Attorneys at Groce & DeArmon, P.C.
Everyone’s financial situation is unique. Our bankruptcy attorneys would need to examine your finances to determine the best course of action for you with regards to your income tax refund and Chapter 7 bankruptcy. Our first consultation is always free. Contact Groce & DeArmon, P.C., online or call toll-free 1-800-640-3706 in Missouri or (417) 862-3706.