Bankruptcy cases often spike during the first quarter of a new year – and for good reason, as many people receive a tax refund and use the funds to pay to file for bankruptcy. You should always consult with an experienced Salinas bankruptcy attorney before you decide to file, as we can advise you of the best time to file based on your situation, and whether using your tax refund to cover fees is feasible.
When you file for Chapter 7 bankruptcy, your property and assets are considered to be the bankruptcy estate. The bankruptcy trustee can seize nonexempt estate property to pay down your priority debts before you receive your discharge. The question becomes – is your tax refund part of the estate that can be seized?
If you receive a tax refund prior to filing for bankruptcy, those funds are part of the estate, and the trustee can take them if you do not have an exemption to apply. However, there is a way to benefit from your tax refund and prevent it from going to your creditors.
You can protect your tax refund by spending it on necessary expenses and purchases. As long as the bankruptcy trustee finds that you spent it on necessary items, the trustee will leave those nonexempt funds alone. Necessary costs can include:
If you spend your refund on luxury items, debt repayments (such as paying off one credit card or a family loan), or advance expenses, it will not protect your tax refund.
Fortunately, it is allowed to use your refund to cover the costs of your bankruptcy filing. This can include the following:
Many people who are in need of bankruptcy might not have the funds available to cover these upfront costs of a bankruptcy case. For this reason, using a tax refund can be a win-win situation. It allows you to seek the financial relief you need through bankruptcy, and also prevent the bankruptcy trustee from taking your refund.
Bankruptcy can help many people, and if you are struggling to pay your debts, now is the time to discuss whether bankruptcy is the right choice for you with a bankruptcy lawyer you can trust. There are solutions to cover the costs of bankruptcy, so do not let that stop you from exploring this option.
The law firm of Miranda, Magden & Miranda, LLP, handles bankruptcy cases for consumers in all different situations. We can evaluate your circumstances and advise you on whether filing is a good
option for your situation, and if it is, how and when to file for bankruptcy to maximize the benefits for you. If you would like to discuss a possible bankruptcy case, please contact us to consult with a Salinas bankruptcy attorney.
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