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!


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