Can a Trustee Take Your IRS Refund After Discharge From Bankruptcy in Nevada?
When you file for bankruptcy in Nevada, you essentially ask the bankruptcy court for help paying your debts. The bankruptcy court will take over, and if you have any funds available with which your debts can be paid, these funds will be taken to pay your debts. A bankruptcy trustee will have the task of paying these debts. In doing so, the bankruptcy trustee may take your IRS refund even after you have received a discharge.
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The Bankruptcy Estate
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The filing of a bankruptcy petition creates a bankruptcy estate. The bankruptcy estate consists of all property that a debtor owns at the time he filed the bankruptcy petition. That means that once you file your bankruptcy petition, all of your property becomes property of the bankruptcy estate. Upon the filing of your petition, the clerk of the bankruptcy court will transmit your petition to the United States trustee. The U.S. trustee will, in turn, appoint a local bankruptcy trustee to administer your case.
Property of the Bankruptcy Estate
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The bankruptcy trustee must determine which property you own should remain property of the bankruptcy estate. In a Chapter 7 bankruptcy case, the Bankruptcy Code allows you to claim certain property as exempt from the bankruptcy estate. The type of property that you can claim as exempt varies by state, so Nevada has its own list of property that you can claim as exempt. Any property that is not exempt remains property of the bankruptcy estate.
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IRS Tax Refund
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An IRS tax refund is classified as personal property; and therefore, can also be included as property of the bankruptcy estate. A bankruptcy trustee may take all or a portion of your tax refund, depending on the time of year you filed your bankruptcy case. Even if you receive a discharge of your debts before you receive your tax refund, the bankruptcy trustee will still be able to take those funds and apply them to any debts you owe. The rationale for this is that you were entitled to the funds during the bankruptcy case, so the refund should be included as property of the bankruptcy estate.
Earned Income Tax Credit
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Fortunately for you if have low to moderate income, Nevada state law allows you to exempt your earned income tax credit refund. If you received or will receive the earned income tax credit, claim this exemption on your bankruptcy forms. If you do not qualify for an exemption, you should not spend your tax refund once you receive it. The bankruptcy trustee can come back later and request that the money be paid to him.
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