Learn how some simple planning can allow you to keep your tax refund if you file for Chapter 7 bankruptcy.
If you are considering filing for Chapter 7 bankruptcy and you are expecting to receive or have received a tax refund, you probably want to know what happens to that refund. In general, whether you lose the refund or not depends on the timing of your bankruptcy and the receipt of your refund. But there are things you can do to make sure you keep your tax refund.
A Tax Refund Is Part of Your Bankruptcy Estate
When a debtor files for Chapter 7 bankruptcy. all of the person’s assets become part of the bankruptcy estate, which is administered (controlled) by the Chapter 7 bankruptcy trustee. The Bankruptcy Code defines assets very
broadly. It includes more than money in the bank or property, such as a car. A tax refund is an asset that the trustee can use to pay unsecured creditors. It is very likely that the trustee will ask about a tax refund at your meeting of creditors .
In Chapter 7 bankruptcy, the trustee can use the assets you have when you file for bankruptcy to pay off your creditors. You can keep any assets you receive after filing for bankruptcy, however. A tax refund can be tricky because it often involves a process that begins before the bankruptcy filing date and continues afterwards.
What Happens to Your Tax Refund in Chapter 7 Bankruptcy
If you do not take any action, the trustee will handle a tax refund as follows: