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Bankruptcy and Tax Returns - Michael Jeffries Law

Danville Bankruptcy Attorney Will Answer Your Tax Questions

Indiana Bankruptcy Law Firm Serving Central Indiana for Nearly 20 Years

A common question many bankruptcy attorneys encounter during tax season is whether or not a bankruptcy petitioner will be allowed to keep their income tax refund. The answer depends upon the status of the bankruptcy case and whether the individual filed for chapter 7 or chapter 13 bankruptcy.

Chapter 7

Prior to filing for chapter 7 bankruptcy, you will not be subject to a claim from the bankruptcy trustee, so if you are expecting an income tax refund, it is usually best to wait for your refund before you file. However, the Indiana exemption for cash is $350 for an individual and $700 for joint bankruptcy filers, so if your refund exceeds those sums, the trustee will likely claim all but the exemption amounts. It is permissible, however, to spend the refund on living expenses prior to filing for bankruptcy.

If you have filed your bankruptcy petition prior to receiving your refund, the trustee may claim at least part of it, depending upon when your petition was filed, since his claim will prorated through the tax year of the bankruptcy filing. If a portion of your income tax refund is attributable to the earned income tax credit, the trustee is not entitled to that part of your refund.

Chapter 13

If you filed for chapter 13 bankruptcy, whether or not you will get to keep your tax refund depends upon your repayment plan, specifically what debts you owe and how much you are paying to unsecured creditors. Some chapter 13 petitioners may be required to give up half of each tax refund during the three to five year life of their repayment plan, while others may not have to turn over any.

Failure to Comply

If it is determined that you must turn over at least part of your income tax refund to the bankruptcy trustee and you fail to do so, there will likely be consequences, such as revocation of your chapter 7 discharge or dismissal of your chapter 13 case.

Call Jeffries Law Today

If you have questions about bankruptcy and how it might affect your tax return and refund, contact Indiana attorney Michael Jeffries, who represents bankruptcy clients throughout Central Indiana, and has done so for nearly two decades. Contact us online or call 317-451-8544 to schedule an appointment at our Danville office.