Bankruptcy

Will I Be Able to Keep My Tax Refunds in bankruptcy?

If you are are planning on filing for bankruptcy soon, and are also expecting to receive a future tax refund, you may wonder whether you can keep your tax refund after filing a bankruptcy case, or whether you would have to turnover that refund to your bankruptcy trustee. Whether you are able to keep your tax refund or not, depends in large part on what type of law is applied to your case in order to protect all of your assets. There are two types of law that can be applied to any given bankruptcy case – federal or state law. Your bankruptcy attorney will determine which type of exemptions to use in order to best protect your property during your bankruptcy. 

    If federal law is applied to your case to protect your property, typically, most if not all of your future tax refunds that you receive will be protected or exempt. This means you would likely not have to give up most, or any, of your future tax refunds to your bankruptcy trustee. The reason for this is that federal law provides a wildcard provision statute, which can protect approximately $15,000 in miscellaneous property, such as additional vehicles, cash in the bank, additional property and tax refunds. The amount of wildcard provision that you have to protect additional property is based on the amount of equity you own real estate. The less amount of equity in real estate you own, the more wildcard you have available to protect other personal property, including tax refunds. People with little to no equity in their home or real estate will typically have the full wildcard provision available. This also includes people who own no real estate, such as renters. For instance, if you rent an apartment or a house, then you can rest assured that most likely, all of your tax refunds will be protected and you will not likely have to turnover your tax refund to your bankruptcy trustee. 

    If state law must be applied to your case in order to protect your property, then unfortunately you will likely have to turnover a portion, if not all, of your tax refunds to your bankruptcy trustee. Minnesota state law does not protect various types of assets, such as additional vehicles, including ATV’s, boats, trailers, and motorcycles. Minnesota state law also does not protect certain types of household items, such as power tools and sports and hobby equipment. This is because you do not get a wildcard provision under Minnesota state law, and therefore, a portion, if not all of your tax refunds will likely have to be turned over. However, even without the wildcard provision under Minnesota state law, in some cases, you may be able to protect a portion, if not all, of your tax refund. This is because under state law, any tax refund that you receive that comes from the earned income credit, additional child tax credit, and Minnesota working family credit for instance, will be protected from the bankruptcy trustee, and you will be allowed to keep a portion of that tax refund. This is because refunds that come from these refundable tax credits are based on financial need, and therefore, are protected under state law.

CALL NOW FOR A FREE STRATEGY SESSION FROM A MN BANKRUPTCY LAWYER AT LIFEBACK LAW FIRM 

   In conclusion, regardless of whether your case was filed under state or federal law, a portion of your tax refund may not be protected from being taken by the trustee to pay creditors. For this reason, you should consult with an experienced bankruptcy attorney, to determine whether you will be better served filing your case under state or federal law, and get specific advise on how much of your tax refund is protected versus how much of your tax refund will not be protected. In general, it is advisable to not spend your tax refunds that are part of the bankruptcy estate until your bankruptcy attorney has had the opportunity to settle your case with your bankruptcy trustee. See us at LifeBackLaw.com! 

 

Story originally seen here

Editorial Staff

The American Legal Journal Provides The Latest Legal News From Across The Country To Our Readership Of Attorneys And Other Legal Professionals. Our Mission Is To Keep Our Legal Professionals Up-To-Date, And Well Informed, So They Can Operate At Their Highest Levels.

The American Legal Journal Favicon

Leave a Reply