This is the time of the year when many people are waiting for their tax refund from the IRS with anticipation and plans of how to spend the funds. If you are also thinking about filing for bankruptcy, you need to know that your tax refund is considered an asset that the trustee may take and use to pay off your debtors. The timing of the filing of the bankruptcy may make a difference in whether or not you can keep and spend your refund or lose it to the bankruptcy trustee.
Chapter 7 bankruptcy in Kansas
If you have filed for bankruptcy and then receive your tax refund, the entire amount of the refund may go to the bankruptcy trustee to be used to pay your creditors. Kansas has had an exemption that has been previously used to exempt a portion of the refund (Earned Income Credit exemption). The bankruptcy court is currently considering whether or not that exemption is constitutional
Chapter 7 bankruptcy in Missouri
A tax refund is not specifically protected; however, Missouri, as do a few other states, allows funds not protected by any other exemption to be claimed as exempt under a wildcard provision.
Chapter 13 bankruptcy in Kansas and Missouri
What happens to a tax refund under Chapter 13 depends upon the terms of each individual reorganization plan.
- Kansas and Missouri both allow bankruptcy petitioners to use their tax refund to pay a bankruptcy attorney.
- You should check your withholding status with your employer. If you are contemplating bankruptcy, it may make sense to receive the lowest possible refund.
Postpone filing for bankruptcy until after you receive the refund. Then, spend it on necessary and approved items like food, clothing, car payments and medical care. Other necessary items include gasoline, mortgage or rent and utilities.
To discuss your bankruptcy options and are going to receive a tax refund, call one of our experienced bankruptcy attorneys for a free phone consultation!