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Can I Keep My Tax Refund if I file for Bankruptcy?

Posted by Cha'Ron Ballard on March 22, 2019

Tax Refund & Bankruptcy

During this time of year many people are focused on getting their taxes prepared. Most hope for a tax refund as the idea of getting money back is much better than having to pay more! Your tax refund is money you have either overpaid in taxes or money that was withheld from your pay check over and above what you owe in taxes. While it is nice to get some money back, if you are considering filing for bankruptcy because of your financial situation, you may not get to keep all or part of your refund.

Tax Refunds and Chapter 7 Bankruptcy

Whether or not you can keep your tax refund and/or how much you can keep of your tax refund depends on what type of bankruptcy you plan to file. In a Chapter 7 bankruptcy, you are required to list all of your assets. A tax refund based on money you earned before filing for bankruptcy will be considered an asset and thus part of the bankruptcy estate, just like other cash or bank accounts.

Generally, you won’t be able to protect much cash or money in a bank account, including your tax refund. However, one possible way to protect your refund (or part of your refund) is to use the wildcard exemption permitted in Georgia that can cover property of your choosing. You could use this wildcard exemption to protect a tax refund.

Tax Refunds and Chapter 13 Bankruptcy

A Chapter 13 bankruptcy differs from a Chapter 7 bankruptcy in that it is a repayment plan rather than a total discharging of your debts. As part of a Chapter 13 bankruptcy repayment plan, a person must pay all their disposable income to the plan. This means that income not used for necessary expenses, such as living expenses, has to go towards repaying debts. As a result, a bankruptcy trustee is likely to consider a tax refund “disposable income” and you would not be able to “keep” your tax refund, but it would have to be applied right to your bankruptcy debt.

However, there are some protections and exceptions applicable to tax refunds in a Chapter 13 bankruptcy. First off, may districts allow a person to keep at least a portion of their tax refund, though the amount a person can keep can vary throughout the state. Any tax refund above and beyond the limit would go to your bankruptcy plan. Second, a person may be able to keep their tax refund if they can show they would use the money for necessary or unexpected expenses, such as a medical or dental emergency, a required car or home repair, etc. In this situation, the Court would decide if the expense was necessary and then make an exception allowing the tax return to be excused from the bankruptcy plan.

Get Guidance from An Experienced Atlanta Bankruptcy Lawyer

Knowing whether bankruptcy is the right choice for your financial situation can be difficult, especially when it can directly affect your tax refund or other money/assets.

As experienced Georgia bankruptcy attorneys, The Ballard Law Group can evaluate your individual situation and advise you as to whether a Chapter 7 or Chapter 13 bankruptcy proceeding would be in your best interests. Call us today at 404-220-9906 to schedule your free initial consultation at either our Atlanta or Lawrenceville office.

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We offer two convenient locations for appointments with our attorneys—Atlanta, GA and Lawrenceville, GA. Call us today at 404-220-9906 in Lawrenceville, GA or 404-220-9916 in Atlanta, GA or fill out the form and get started on the road to financial relief with a free initial consultation.

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Atlanta, Georgia 30326

Phone: 404-220-9916

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