What Happens To My Tax Refund If I Declare Bankruptcy?

Bankruptcy Attorney

A question that comes up quite frequently when discussing bankruptcy is tax refunds. Some people who typically get rather large refunds have wondered whether or not their refunds will be used to pay off creditors if they decide to file for bankruptcy protection.

The answer to that question depends greatly on when and how they receive that money. The bankruptcy code is used to determine exactly what is and what is not considered an asset and in the case of a tax return it depends on a few factors as to whether or not it will be considered one. Of course if you receive the tax return before you file then that cash will be included in the assets that you must declare. Having said that there are some ways you may be able to protect that tax return. If you have received the tax return before filing for bankruptcy you may well be able to keep the return if you spend it on things that are deemed “necessary” by the courts.

Some of the items that fall into this category may include medical care, maintenance on your vehicles, utility payments, mortgage payments and clothing. If you choose to spend the money on “luxury” items you run the risk of having your petition for bankruptcy denied. Be absolute sure to seek and talk to a qualified bankruptcy attorney to get the information you require before taking any steps to ensure that you are in compliance with state and federal bankruptcy laws.

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