Is Keeping Your Tax Refund After Filing Bankruptcy Possible?
It depends. To be eligible to receive a discharge, a debtor must have filed the last four years of tax returns if returns are required. Your attorney is required to provide a copy of the copies of the last tax return filed to the trustee.
If you have filed a return, but have not received your refund for the year, you must have a way to exempt the tax refund. If you have no exemption available, you may be able to wait until you get the refund. Then file.
If you have past due child support or a federal debt that has already attached to the refund, bankruptcy will not stop the seizure of your refund by the Department of the Treasury.
In Chapter 13 bankruptcy, how the tax refund is handled will depend on your Chapter 13 plan. In the Eastern District, you can keep up to $2,000 each year of a refund. If you need to keep more than $2,000, you have to show some special circumstances like unexpected large medical bills or car repairs. There is a possibility of keeping your earned income credit by showing need.
Normally, with planning, you may be able to hold on to your tax refund. Don’t withhold too much for taxes from your paycheck. The best thing to do is to adjust the amount of taxes you are withholding from your paycheck. Sometimes, this can’t be done where you get certain credits: earned income, adoption credit, or child tax credit. In that situation, you may need to tell the Court why you need to keep more than your plan allows.
Don’t fear losing your tax refund. You count on getting this money each year. Talk with an experienced bankruptcy attorney early to find out what you need to do.