I regularly receive this question: Will the trustee take my tax refund every year?  The answer is, as usual, it depends. So lets take a look at some of the factors that go into answering this question.

First, in a Chapter 7, you want to look at what time of the year you filed your bankruptcy. The trustee, or more accurately, your bankruptcy estate, only owns that part of the refund that is due to you as of the date that you file. So, if you file on July 1, then one half of the calendar year has passed and one half of the tax refund that you might receive in the following year could be considered part of your bankruptcy estate and could be taken by the trustee.

However, as usual, there is more to this. Part of your tax refund might be due to the child tax credit or due to earned income credit. The trustee is not entitled to any of this money. Also, there are exemptions which can be applied to save or protect part of your tax refund. In Ohio, there is a wild card exemption of slightly over $1000 which can be applied to any property, including your tax refund.

In Chapter 13, you’re in a bankruptcy for up to five years. Therefore, every tax refund that you receive while you are in a Chapter 13 bankruptcy may be considered by the trustee. The same rules apply. The trustee is not entitled to take any earned income credit or child tax credit. Also, you generally are entitled to apply your exemption to the tax refund.

So, you can see, the answer is not as black and white as it may seem and the application of these rules means that in one case a family might be able to keep a rather large tax refund and in another case a family may lose a large portion of the tax refund. It all depends on the circumstances of the case, and what the tax refund is based upon.