A big part of filing for bankruptcy is preparing your exemptions and trying to keep as much of your property and finances as possible. For some people, a large portion of their finances actually comes from their tax return. Can bankruptcy affect the way you file taxes, though, and the outcome for your filing?
The answer is a definitive “sometimes.” Many states will allow you to count your tax refund as an exemption when filing for Chapter 7 bankruptcy. If it is exempt, bankruptcy has to leave it alone. Other states might not have specific exemption rules for tax returns but they may have a wildcard exemption, which can be utilized to protect one specific asset, regardless of what it is.
Filing for bankruptcy while in the middle of tax season can add an element of uncertainty to the equation. If you cannot protect your recently-received return, what can you do with it so all of that money doesn’t wind up in your bankruptcy estate? Many people choose to spend the return in its entirety before filing. If this is the route you are going to take, make certain all expenditures are necessary, such as food, shelter, medical bills, and so on.
If you are filing for Chapter 13 bankruptcy, you might be out of luck. In most cases, a tax refund is considered part of your assets and disposable income, and therefore will be put towards paying off your debt and resolving your bankruptcy. Remember: Chapter 13 is more about lessening debt and repaying what you can over 3 to 5 years and less about eliminating it entirely.
Filing Complications & Legal Help
Chapter 7 bankruptcy will also affect your taxes by splitting your estate into two: personal and bankruptcy. You will need to make a tax filing for each estate, and each one will be governed by its own set of rules and regulations. If you need some help figuring out what to do about your bankruptcy, or if you are concerned about how it will affect your taxes, you can depend on Belsky, Weinberg & Horowitz LLC. Our Baltimore bankruptcy attorneys are known throughout the region for being the fastest emergency bankruptcy filers around. Contact us today get a team with more than a century of bankruptcy law experience on your side.