Thursday, February 20, 2014

Can Filing for Bankruptcy Affect my Tax Refund?

Should I file my taxes before I file for bankruptcy? While every situation is different, the most common answer is yes, file your taxes before you file for bankruptcy if you are expecting a refund.

When filing for bankruptcy, remember that any and all cash is considered part of the bankruptcy estate and is given to the trustee once you file.  You will not be able to keep it.  Tax refunds received after filing for bankruptcy are considered part of the bankruptcy estate.  So, if you anticipate receiving a tax refund, it may be in your best interest to file your taxes and receive your refund before filing for bankruptcy.  However, make sure you have a plan in place for where that refund will be going.  Because as we mentioned, if you keep it as cash or leave it in the bank, it goes to the trustee once you file.  Here is a great blog post we wrote on smart ways to spend your tax refund prior to filing for bankruptcy.

Something important to remember-timing is everything.  While you may want to wait until after receiving your tax refund before filing for bankruptcy, don't wait too long to file.  Any income earned prior to filing becomes part of the bankruptcy estate, and that includes a pro-rated portion of your next years tax refund.

Come in and receive a free consultation and we will discuss your situation specifically to ensure you are making the best choices on how to get the most out of your fresh start!  Call Today!

Sunday, February 16, 2014

The Proper Way to Go Broke Before Filing Bankruptcy

From our experience, we have seen many smart ways, and many not so smart ways people use their money prior to filing bankruptcy. Here are a few lessons that people have learned along the way:

1. Make sure on the day you file there is nothing in your bank account.  This doesn't mean withdraw everything you have just prior to filing and stuff it under your mattress.  Any and all cash is considered part of the bankruptcy estate as of the day you file, and it all goes to the trustee.  You don't get to keep any of it.

2. You are allowed to plan or "get your ducks in a row" prior to filing bankruptcy.  You are also allowed to maximize the exemptions and increase the property you get to keep.  That includes converting non-exempt assess (such as cash) into exempt assets (like a washer or dryer). Making smart purchases with your money prior to filing can help you transition out of bankruptcy and help reduce the amount of cash that may become part of the bankruptcy estate.

3. Don't use your money in a way that can be considered as preferential payments.  This includes paying back debts owed to family or friends.  Any money that goes back to family or friends (or even a favorite institution) prior to filing bankruptcy could be viewed as an attempt to defraud your other creditors, and could be recalled by the trustee. Show your family your love and appreciation for their patience and caring another way, like by painting their fence or baking them brownies. You can always repay them after the bankruptcy is discharged.

4. Some exempt assets to consider purchasing prior to filing bankruptcy include:
Most major appliances (NOT televisions)
Beds and bedding
Clothing and shoes
Food - up to a year supply
Back payments on secured assets such as cars or homes (NOT recreational vehicles)
Bringing utility payments current
Necessary and current bills such as rent or cell phone bills
It can also be used for paying the cost of your bankruptcy

5. Some items we recommend NOT purchasing or spending money on prior to filing bankruptcy include:
Vacations or any travel (this includes a weekend in Wendover)
Recreational Vehicles
Paying more than your current rent
Anything that would not be considered exempt.  Call us if you have any questions about what is considered exempt.

6. Plan all payments just prior to filing bankruptcy in such a way that you have not pending transactions on the day you file.  If you have a payment that hasn't been processed by the bank and still has not cleared your account, it will be considered part of the estate. It may be wise to make any payments the week before you file by withdrawing the money and making the payment as a cashier's check.

Still unsure about how best to plan for your bankruptcy?  Call us today for a free consultation and we will help you maximize your options.