Missouri Bankruptcy and Taxes: Can the Court Seize My Tax Refund?

With 2012 nearing an end, most Missourians that are considering bankruptcy are concerned about how a Missouri bankruptcy filing would affect their potential tax refund.  This is a valid concern. Tax refunds are an asset of your estate and therefore the court can act upon the refund depending on what type of chapter you file (7, 11, 13) and what type of refund you have.

Recently Missouri passed a new state exemption bill that directly impacts tax refunds.  All government benefits are exempted under the new Missouri law.  While it hasn’t been fully settled, the prevailing opinion is that any earned income credit or child credit will now be exempted.  Any refund due from interest paid or wages will still be actionable by the Court.

Depending on which bankruptcy you file (7, 11, or 13) also can impact your tax return.  In Missouri, specifically the Eastern District, if you file a Chapter 7 bankruptcy, your refund is a potential asset only once and generally will depend on your filing date.  In a Chapter 13, your refund is an asset every year you are in your Chapter 13 and you are only allowed to retain a specific portion of the refund.  The rest is turned over to the Trustee and used as additional payments in your Chapter 13 bankruptcy case.

In conclusion, if you are considering filing a Missouri bankruptcy in the near future you should contact an experienced bankruptcy attorney who can advise you on tax issues as they relate to bankruptcy.  Not only can our office advise you on how to protect your current refund, but how to avoid tax issues in the future.

Visit the Missouri Bankruptcy Center Home Page

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