Tax Refunds

by Amy Jackson

As tax season approaches knowing your rights regarding your tax refund when filing bankruptcy is of great importance.  There are several different factors when it comes to how to protect your tax refund in bankruptcy.  The type of bankruptcy you file, exemption laws, source of the refund, and timing of the filing of your case all can make a difference in keeping your refund.  We know many people depend on those refunds to get their families through the year, that is why we fight for every dollar our clients get to keep and thoroughly advise our clients of their options.

When it comes to tax refunds and bankruptcy proper planning is the key.   For some debtors is may be necessary to file their bankruptcy after the refund is received and for others filing prior may be the better option.  A knowledgeable attorney will have the answer.  Another key factor are the exemptions used to protect your property.  The majority of our clients are required to use Missouri exemptions which have conservative limits.  The value to these exemptions can vary based household size and whether the case is jointly filed by 2 debtors, a married couple, or an individual filing.

Lastly, the origination of the refund will make a difference.  If the refund stems from Earned Income Credit or Child Tax Credit then the right exemption will protect all of that portion of the refund.  Any portion of the refund that stems from overpayment will have to be prorated based on the filing date and protected using other exemptions if they are available.  The complexity of the tax refund issue can seem daunting.  Seeking legal advice from a qualified attorney can mean the difference between keeping the refund or paying it to your creditors.

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