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If You File Bankruptcy Can You Keep Your Tax Return?

A common concern among personal bankruptcy filers is whether or not they'll be able to hold onto money they receive in the form of a tax return.

Many people assume that, since bankruptcy is a federal program, any money owed to them in the form of a federal tax return will be taken by the courts or the IRS. Filing bankruptcy does not necessarily forfeit your right to receive money owed to you by the IRS. However, it is possible the court could consider your tax return to be income, and use it to pay your creditors.

To determine whether or not you may be able to keep your tax return if you file for bankruptcy, please fill out this form to arrange a free, no-obligation consultation with a bankruptcy lawyer today.

Chapter 7 Bankruptcy & Tax Returns

If you decide to file for Chapter 7 bankruptcy (which works by offering filers a discharge of some or all of their unsecured debts), here's what you need to know about your tax return.

  • Expected assets must be reported: If you're expecting a tax return when you file your bankruptcy petition, it's important to let your lawyer know. This is because part of the bankruptcy filing forms require filers to report all their debts and assets. Future assets might include an inheritance, a pension check, a retirement fund, a tax refund or similar types of income. It's important to report this expected income because…
  • Each state has a cash exemption: State bankruptcy laws outline exemptions that Chapter 7 filers can claim when they file their cases. Exemptions refer to property and assets that are legally excused from liquidation (sale) by the court. If you are eligible for a cash exemption and your tax return puts you over the cash exemption limit, your bankruptcy trustee has a right to take some of that money to repay your creditors. If you don't report an expected tax return…
  • You could be charged with bankruptcy fraud: This is a serious matter, as those found guilty of committing bankruptcy fraud can not only have their case dismissed, they can be slapped with a serious fine or jail time or both. If you aren't sure what to expect from your taxes this year, ask your bankruptcy lawyer about how to handle this particular aspect of your bankruptcy paperwork.

Chapter 13 Bankruptcy & Tax Returns

Chapter 13 bankruptcy works a little differently from Chapter 7: in Chapter 13, filers make regular payments to their bankruptcy trustee (who distributes the money among creditors) for a period of three to five years in an effort to catch up on past-due debts.

The repayment plan is based on your income over the past six months, and may take into account expected income such as a tax refund. If you are expecting a significantly large tax return, it may affect how much you end up paying your creditors for the duration of your Chapter 13 case.

As in Chapter 7 bankruptcy cases, Chapter 13 filers must disclose any expected tax returns on their petitions (or risk being accused of bankruptcy fraud).

Ask a Bankruptcy Lawyer about Your Tax Return

As with many aspects of bankruptcy, the question of whether or not you'll be able to keep your tax return depends heavily on the particulars of your case. To get a better idea of your circumstances, take advantage of this opportunity to connect with a bankruptcy lawyer. Use the case review form below to connect with a sponsoring attorney toady.