Filing for bankruptcy can clear out a lot of overwhelming debt that you have been struggling to pay. But you can’t just declare that you are unable to pay and have the bankruptcy court discharge all your debt. You have to submit your finances for analysis, and the court will decide whether you are truly able to pay some or all of your debt or not.
Income is included in this financial analysis, but it is not the only thing the court considers when determining your ability to pay your creditors. The court will also look at assets like your home and your car, as well as savings like retirement accounts and stock. If you are expecting a tax refund or you have received one within a certain amount of time of filing for bankruptcy in Gilbert, you may also have to use your refund to pay your creditors.
Chapter 7 vs. Chapter 13
A big factor in whether you get to keep your tax refund after you file for bankruptcy is what kind of bankruptcy filing you choose. Chapter 7 bankruptcy is the type that most people have in mind when they file for bankruptcy, and it is the one that discharges most of your debt with no repayment. Whether you will have to use your tax refund to pay your creditors depends on when you file for bankruptcy.
If you file for Gilbert Chapter 13 bankruptcy, your tax refund will be used to pay your creditors as part of your repayment plan. This can continue over the course of the plan.
Timing of Your Filing
To keep your tax refund, you’ll need to work closely with a Chapter 7 bankruptcy attorney to determine the right time to file for bankruptcy. Whether you get to keep your refund depends entirely on timing.
If you receive a refund for the tax year prior to the year of your bankruptcy filing, you will have to turn that refund over to the bankruptcy trustee to pay your creditors. Your refund will be seen as money you had in “savings” throughout the year since it was money you had to pay but was not ultimately needed for those taxes.
If you receive a refund for the same tax year as your Gilbert bankruptcy filing, you will get to keep part of that refund. You will keep the part of the refund that is from taxes that you paid in the months following the bankruptcy filing. The remainder of the refund will be taken by the bankruptcy trustee to pay your creditors.
Spending Your Refund
You may be able to keep your tax refund by spending it before you file for bankruptcy. Just be careful what you spend it on! If you spend it on frivolous or luxury items like a trip, the bankruptcy court may feel like you intentionally diverted assets to avoid paying creditors. Spend it only on things that are deemed necessary living expenses, such as rent and food.
Don’t think that just because the refund is gone, the issue is settled. The court can try to get the money back if it decides you have spent it inappropriately.
In many cases, you can file for Chapter 7 in Gilbert and keep the few assets that you have, such as your home and your car. However, if you received a tax refund, expect that to be claimed for paying your creditors. The best thing you can do to keep as much money in your pocket as possible is to work with an experienced Chapter 7 attorney who can help you determine the right timing for filing your taxes and who can create an overall strategy that will get you the best results.
Gilbert Bankruptcy Lawyers are ready to do just that for you. We help our clients create a strategy that will get them the maximum debt relief while also retaining the maximum amount of assets, including cash. We help both individual and business clients on all types of bankruptcy filings. It is our goal to help you get the fresh start you need so you can start taking back control of your finances. Call us in Gilbert today to set up a consultation with one of our dedicated bankruptcy attorneys.
Gilbert Bankruptcy Lawyers