The treatment of income tax refunds in bankruptcy cases can catch people by surprise. If you have not received your tax refund before the case is filed, it must be listed on the Schedule of Personal Property. In many cases, the refund can be protected, but not always.
Make sure that you consult with an experienced Plano Bankruptcy Attorney to determine what will happen to your refund if you do decide to file a bankruptcy case. If you receive a tax refund after filing a bankruptcy case, make sure to contact your attorney before spending the refund. In Chapter 13 Bankruptcy Cases in Plano and the surrounding areas, you will generally be allowed to keep tax refunds that are less than $2,000.00. The Standing Chapter 13 Trustee in Plano is Janna Countryman http://www.13network.com/trustees/pla/plahome.asp
Because Chapter 13 bankruptcy lasts from three to five years, you should adjust your tax withholdings to avoid getting large refunds throughout your case. Of course, you don’t want to get into tax debt during the case either.
Mistakes to avoid
Filing bankruptcy before receiving a tax refund without knowing what will happen to it. Ask your attorney if the refund can be protected. Find out if you should postpone filing for bankruptcy. Knowing beforehand what will happen will save you a great deal of grief afterward.
Spending a tax refund without approval. Contact your bankruptcy lawyer if you receive a tax refund after filing for bankruptcy. An experienced Plano Bankruptcy Lawyer will be able to tell you if you can spend the refund, if you must turn it over to the Bankruptcy Trustee, or if other options are available. If you spend the refund when you should have turned it over, it is possible that your case could be dismissed, that you will be ordered to pay back the Bankruptcy Trustee, or that you may be subject to other sanctions.
Continuing to receive large tax refunds after filing for Chapter 13 bankruptcy. Minimizing your tax refund by having the correct amount withheld from you paychecks is good advice for almost everyone. Getting a tax refund generally means that you have paid in too much throughout the year and let the government hold your money all year. In Chapter 13 Bankruptcy, it can also mean losing the refund. It is possible that the Bankruptcy Trustee will claim that a large refund is “extra money” that you should pay to your creditors. If you expect to receive a large tax refund every year no matter how little you have withheld from you paychecks, let your bankruptcy attorney know. There are ways to help protect these types of refunds. Usually this type of refund comes from earned income tax credits and child tax credits. As with most things, communication with an experienced Bankruptcy Lawyer will help you make the best decisions.