This is the time of year where we all are gathering paperwork, waiting on 1099 and W2’s, and either calling to make appointments with our CPA, or buying the latest tax prep software. However, if you are thinking of filing Chapter 7 bankruptcy, before you spend that tax refund, make sure you will be able to keep it.
Generally, the actual amount of your refund that is protected will be prorated based off of when you file. While each state can have laws specific to them, your bankruptcy estate will be able to keep refunds that you receive before you filed your case, or that is due to you for a portion of the year that passed prior to you filing. It is probable the Trustee will ask you at your 341 Meeting (Meeting of Creditors) if you have, or anticipate receiving a refund this year. The reason why is the trustee could potentially use those funds to pay creditors who would otherwise not receive anything.
Speaking to your attorney about the timing of your filing will be key if you feel you will fall into this situation. Once your case is filed, and eventually discharged, however, future refunds will be yours to keep. If you do in fact receive your refund, and your attorney advises you that you can keep it, be sensible about what you spend it on. Necessity items such as rent and mortgage payments, clothing, food, or utilities is certainly acceptable. Don’t spend it on a week long vacation while you await your 341 meeting or discharge.