December 29, 2016

When you file a chapter 7 bankruptcy, you are required to disclose your ownership or interest of any kind in property.  These interests are then listed on your bankruptcy papers that are filed with the Court.  When a chapter 7 is filed, a Trustee is appointed to review and administer your case.  One of the Trustee’s responsibilities is to review the property listed on your bankruptcy papers to determine whether any funds might be available for creditors.

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 In many cases, it is easy to identify the assets that you own.  One asset that can be initially overlooked is your tax refund for the year you file your case.  It is important to understand that tax refunds not yet received are considered an asset of your bankruptcy estate, even though the refunds will not be received until the following year.  The first step is to properly list the interest in the tax refunds (Federal, State, and local) on your bankruptcy papers. 

Whether you can keep the refund depends on the exemptions you are able to use.  Exemptions are used to “protect” property that you own from sale by the Trustee.  In many chapter 7 cases, there are enough available exemptions and you are able to keep all of their property, including tax refunds.  However, in some instances, the exemption might not be available or applicable, depending on the specific circumstances of your case.  If you are using “State” exemptions, or if you have already used all of your available exemptions on other property, you may not have enough remaining exemptions to apply to your full refund.  If this is the case, it is important to consult with an attorney to determine the effect, and what options you have.

If you have questions about tax refunds and how to protect them in a bankruptcy proceeding, please contact one of our board certified consumer bankruptcy attorneys.

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