5 Essential Tips To Avoid Losing Your Tax Refund In Bankruptcy.
Contributed by Stuart Parker from DebtCC.
For many Americans, tax time is something to look forward to. Most bankruptcy clients are used to getting a large tax refund each year that helps pay for many delayed expenditures. Clients often want to know if their tax refund could be at risk in a bankruptcy case. Although it is possible for a bankruptcy trustee to require turnover of a tax refund, in most Chapter 7 cases a tax refund can be claimed exempt. In Chapter 13 cases, many times turnover of the yearly tax refund is a standard part of the Chapter 13 repayment terms. Here are five important points regarding tax refunds and bankruptcy:
The bankruptcy Trustee can request the IRS or FTB turnover your tax refund directly. This means the refund may go straight to the bankruptcy Trustee. If you receive the refund, it does not mean that it’s automatically safe as the Trustee can request the Debtor turnover the refund as well. As discussed above, if the refund is claimed exempt in a Chapter 7 case, turnover will not be required.
A tax refund is an asset, regardless of whether you have received it. When filing a bankruptcy case, an anticipated tax refund should be listed on Schedule B and claimed exempt on Schedule C. Failing to list a tax refund as an asset would allow the bankruptcy Trustee to seize it.
If you receive a larger tax refund than the amount you claimed exempt, you have a duty to inform the bankruptcy Trustee assigned to your case. A larger than anticipated refund does not necessarily mean the difference will be forfeited. It may be additionally claimed exempt through amending the bankruptcy schedules.
Not all Chapter 13 debtors must turnover their tax refund. Policies on tax refund turnover vary based on jurisdictions. In some locations, Chapter 13 plans do not routinely include turnover of tax refunds. Whether you will have to turnover a tax refund in a Chapter 13 case is a question for an experienced local bankruptcy attorney.
You must timely prepare and file your tax returns. The bankruptcy code requires that you provide the bankruptcy Trustee assigned to your case copies of your recently filed tax returns. Most Trustees will also verify under oath that you have filed all income tax returns as they’ve come due. Many Trustees will keep a case open if a tax return is pending and require it be filed prior to allowing the case to close.
Keep these rules in mind if you are thinking about filing bankruptcy. An experienced bankruptcy attorney can advise you as to specific plans to keep your refund safe in a bankruptcy case. Improper planning, however, can lead to loss of a tax refund so make sure to plan ahead and get qualified advice from a bankruptcy attorney.
If you have questions about keeping your tax refund safe in a bankruptcy case, contact our Sherman Oaks Bankruptcy Attorneys today at 818-377-7413 or visit http://shermanoaks.bodiebankruptcylaw.com/