Will I Lose My Tax Refund if I File Bankruptcy?
As 2015 comes to a close, it’s time to start thinking about next year’s tax refunds. Many clients filing for Chapter 7 Bankruptcy receive some sort of tax refund. The refund may be attributable to an over-withholding of taxes, or a refundable tax credit such as the Earned Income Credit or the Child Care Tax Credit. Depending on how much you will receive and what the refund is attributable to will determine whether you may lose a portion of your refund. It is extremely important that you meet with an experienced bankruptcy attorney to help you determine what can be protected, and what is in your best interest. Failure to speak with an experienced bankruptcy attorney could cost you thousands of dollars, or if you do not turn the money over, a revocation of your discharge.
Whenever I advise a client on what I can protect, I begin by examining their previous tax return. I then exclude the portion of the refund that is attributable to the Earned Income Credit as that amount is exempt from the bankruptcy estate. I then apply all available exemptions to determine what amount, if any, is at risk of being lost. I advise the client of any potential loss and we discuss whether it would be better to wait to file until after they have received their refund. Each situation is unique and must be analyzed by an experienced bankruptcy to ensure the best result for their client.
If you are considering filing bankruptcy but are worried about losing your tax refund, contact me today at (314) 802-8328, or complete the free online evaluation.