How to Keep a Tax Refund During Chapter 7 Bankruptcy

Chapter 7 bankruptcy requires you to give all excess income and assets to pay creditors in exchange for a complete discharge of remaining debt. All U.S. bankruptcy courts require debtors to file a tax return for the year in which they are filing. The courts treat any refund acquired during the case as an asset. Your ability to keep the refund, however, will depend upon the laws of your bankruptcy and your actions once you receive the refund.

Instructions

1. Contact your lawyer or the trustee to ask if your state allows debtors to keep portions of tax refunds that come from the Earned Income Credit or the Child Tax Credit. If so, look on your tax return to determine how much is from the EIC and the Child Tax Credit. You can expect to keep at least that amount.

2. Look on your petition to see if you claimed all allowable cash and wild card exemptions. If not, you can keep as much of the refund as allowed by the unused exemption.

3. Send the entire refund to the court by money order or cashier's check. Although the trustee may allow you to keep all or some of the refund, you must surrender it to the court first so the trustee can make an official decision and disperse it as necessary.

4. Wait for the trustee to make a ruling and give you all or a portion of the refund.

References

• Bankruptcy Law Network: Tax Refunds as Assets
• Bankruptcy Law Network: Tax Refunds in Bankruptcy -- Don't Spend Them Without Talking to Your Lawyer First
• Northern Ohio Bankruptcy Information: Tax Refund and Cleveland Chapter 7 Bankruptcy