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Will the Bankruptcy Trustee take my 2021 Stimulus Check?

Will Trustee Take Recovery Rebate Stimulus Payment in Bankruptcy?

What You Need to Know to Protect Your 2021 Stimulus Check

Expecting a stimulus check?  Planning to file for bankruptcy and wondering if your stimulus check will be taken by your bankruptcy trustee. Trying to figure out whether you should file your bankruptcy now, or wait to file bankruptcy after you get your check? Here’s what you need to know.

On December 27, 2020, the Consolidated Appropriations Act of 2021 went into effect.  This law includes coronavirus emergency assistance and states that individuals earning under $75,000 will get $600 plus $600 for each dependent. The funds are categorized as “recovery rebates.”  And,, in an article dated March 12, 2021, reports that the $1,400 checks are now on their way!

Last year, the United States Trustee issued a statement regarding stimulus checks in bankruptcy. For the 2021 stimulus check, however, there has been no published statement. One of the assistant United States Trustees has stated that the policy has not changed.

If you’re one of the many who will get this money, how do you protect it and still file bankruptcy?  The answer depends on several things, including the state you live in, since most states have different laws that apply to your property, including the stimulus check if you have it, or your right to receive it, if you have not yet received it. This will affect your 2021 stimulus check in bankruptcy.

Considering bankruptcy and have not received your check.

Your right to receive the stimulus check, or a recovery rebate on your tax return, is considered part of your property when you file bankruptcy, even if you have not yet received it. Trustees in bankruptcy always ask if you are entitled to receive a tax refund, and if you have not filed, how much you expect your refund to be.

2021 Stimulus


If you have not prepared your 2020 taxes yet, you should.   You don’t want to guess, and possibly lose part of your refund. Your tax refund is composed of several different amounts, some protected, and some not protected.  Because you may have limited exemptions under state law, you need to review your return before you file to be sure you can keep all of your refund.


You have not received a stimulus check. You anticipate you will get it through a recovery rebate on your tax return. You have not filed your tax return yet but expect a refund of $7,000.

Of the $7,000 refund, $2,400 is recovery rebate, and you have no earned income credit, or additional tax credit as part of your refund. The $2,400 will be considered as a stimulus which is not to be administered (taken by the trustee) in bankruptcy, but the remaining $4,600 needs to be protected with available exemptions. In Ohio, each person has $1,325 in a “wild card” exemption, and we can also use the $500 “cash on hand” exemption. In a joint bankruptcy case we can protect $3,650 of the $4,600, but $950 would not be protected. The trustee would take the $950.

Other states have much larger exemptions which would cover the entire $7,000 refund, so you would not need to wait to file bankruptcy if your state’s exemptions cover your refund.

What to do?  If you can afford to wait to file your bankruptcy, then you should file your tax return, and spend it down to the maximum that you can protect with exemptions by paying your consumer debts, like housing, utilities, food, etc.

Planning to file bankruptcy and HAVE received your check.

If you have your money already, use the steps above to see how much of your refund is already protected, without regard to any exemptions. You need to be sure you can “trace” the money in your bank account to the tax refund.

If your state exemptions do not cover the amount of your refund which is in excess of your stimulus refund or recovery rebate, plus any earned income credit or additional child tax credit, then you’ll want to spend your refund down to an amount you can protect.

If your state’s exemption laws do cover either the full amount or at least the amount in your bank account that you can attribute to the stimulus, you should be safe in filing bankruptcy with that amount in your account.

If your state’s exemptions won’t cover all the money in the bank account, it’s important to be able to trace the funds.  Some people make this easier for themselves by opening up a separate bank account to deposit the stimulus money into, so there is no question about it.

Exercise caution when spending down bank account balances

If you need to spend down some of your tax refund, exercise caution so you don’t create a problem for yourself. Generally it’s permissible to use your funds for your own consumer living expenses, but if you pay back money you might owe friends or relatives, this might be a preferential transfer, and create problems for the friend or relative you pay.  There are other mistakes to avoid as well.


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