Will I Receive a Tax Refund After Chapter 7 Bankruptcy?

The timing of your bankruptcy filing can affect whether you can keep your tax returns

The timing of your bankruptcy filing can affect whether you can keep your tax returns

Why the timing of your bankruptcy case could affect your tax refund

The timing of your bankruptcy filing will be important if you are expecting a significant income tax refund.  Pending tax refunds are generally considered part of the bankruptcy estate. Calendar proration is used to determine the portion of the tax refund that can be taken by the trustee. Typically, if you file your bankruptcy case at the first of the year, trustees are less interested in your tax refunds for that year.  However, filing your bankruptcy case at the beginning of the year often means you have not yet received your refund for the prior year, and as mentioned above, pending tax refunds become property of the bankruptcy estate to the extent they are not protected by exemption.  Thus many times there is a “sweet spot” for filing bankruptcy, which occurs as early in the year as possible, yet after the individual has received and spent their tax refunds from the previous year. 

It is usually a good idea to file bankruptcy early in the year, once you have received and spent your tax refunds. However, there are often other circumstances that require attention; for example, if you are facing wage garnishment or home foreclosure, losing your tax refunds may not be your primary concern.

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