Chapter 7 Bankruptcy and Your Tax Refund

//Chapter 7 Bankruptcy and Your Tax Refund

Chapter 7 Bankruptcy and Your Tax Refund

Tax Refund and Chapter 7 Bankruptcy

Tax Refund and Chapter 7 Bankruptcy

It’s that time of year again –  people are beginning to receive their W-2 forms and begin thinking about getting ready to file their tax returns. For the fortunate folks they may even be looking forward to a tax refund.  But, what if a person is also looking to file bankruptcy? Will their tax refund be lost?  As a bankruptcy attorney these are questions that I get quite often this time of year.

The good news for most people is that your tax refund can be protected in chapter 7 bankruptcy under the “wildcard exemption” which is part of the Federal Bankruptcy Exemption scheme.  Most debtors (but, not all) who file chapter 7 bankruptcy in Washington will be allowed to use the Federal Bankruptcy Exemptions.  Your bankruptcy attorney should be able to tell you if you are eligible for the Federal Exemptions.  If you are eligible you may be able to use part of a $12,725 wildcard exemption to protect a tax refund – whether you have received the refund check, or are still waiting for it. This means that if your bankruptcy attorney properly discloses the refund on your schedules, and properly applies the wildcard exemption, it would be safe and not taken away from you during the bankruptcy.

In some cases, the answer is not quite as clear. For example, if you are not eligible for the federal bankruptcy exemptions, and are required to use another state’s exemptions, your tax refund may be in jeopardy.  Not all debtors are eligible for the federal exemptions due to where they have resided in the past 2.5 years.  Again, your bankruptcy attorney should be able to let you know which exemption laws you will need to use. Anyone who has lived in the state of Washington for the last 2 years consecutively will be eligible for the federal exemptions and can take advantage of the generous wildcard exemption to protect a tax refund.

 

 

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By | 2017-05-01T05:51:55+00:00 January 12th, 2015|Categories: Uncategorized|Comments Off on Chapter 7 Bankruptcy and Your Tax Refund