With this year’s tax season wrapping up, many Americans will start receiving a refund from the government. If you are considering Bankruptcy and expect a refund for your 2020 taxes, you should talk with a lawyer about any amount you expect to receive this year because even if the money is not in your pocket the bankruptcy trustee can take
that money from you to pay your creditors once you have filed.

If you have just filed your taxes and have not yet received your refund, the refund would be treated as an amount owed to you and would need to be included and exempted from court-driven liquidation in a chapter 7 case. If you are using 704 exemptions to protect your home equity, it is not possible to protect a refund if you have not received it
yet since there are no exemptions that protect this type of asset. However, there is a little more flexibility on how tax refunds can be handled if they have already been received before filing for bankruptcy. Once the refund(s) is in your possession, the money is treated just like any other cash you might have on hand or in a bank account. If you have any significant amount of money on hand or in a bank account, you should discuss these funds with your bankruptcy attorney to see if they can be protected and if they cannot be exempted in their current state you can seek guidance
on how these funds can be spent down or placed in safer havens outside of the trustee’s control.

Are you considering bankruptcy but expect a tax refund that you need to get by and cannot afford to lose? To see how we can help you today, please feel free to reach out to your Yuba City bankruptcy attorney at (530) 797-4402.

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