Tax Refunds During Bankruptcy

Filing for bankruptcy is an incredibly difficult process for many. When going through bankruptcy proceedings it’s likely you’ll lose some of your assets and most of your disposable income. Most of your money will go towards paying off your debt and afterwards you may be forced live in a tight financial spot for months or even years. With so much lost, it can be difficult to part with your annual tax refund on top of it all.

Often tax refunds will go towards paying your debts during bankruptcy. However, there are a few ways you can try and keep all or some of your tax return. To find out how, it’s suggested you get in contact with an experienced bankruptcy attorney. They can analyze your bankruptcy plan and determine if there’s a way you could keep your full or partial tax refund.

Bankruptcy Attorney Explains Tax Refunds in Cincinnati, OH

During bankruptcy proceedings, you may receive your annual tax refund. Normally, your refund will go towards paying off your debts, but with the right representation you may be able to keep some or all of your return. You can find out if the court will allow you to keep your tax return by getting in contact with an experienced Cincinnati debt relief attorney in Ohio or Northern Kentucky. Our suggestion is to get in contact with the reputable attorneys over at Steiden Law Offices for legal representation. 

Bankruptcy lawyer Eric Steiden at Steiden Law Offices is experienced in the field of bankruptcy law with over 26 years of practice. Both him and his team are committed to serving clients by working tirelessly and exhausting all resources until they’ve found the best solution. To set up your first consultation, simply contact Steiden Law Offices at . 

Eric Steiden and his team proudly represents individuals throughout Ohio including Preble County, Darke County, Lawrence County, and Scioto County, Highlands County, Clark County, Brown County, Adams County, Hamilton County, Butler County, Clermont County, Warren County, Clinton County, Montgomery County, Greene County, Miami County, Shelby County, Champaign County, and Clark County. 

He also accepts clients in Kentucky inluding Bracken County, Robertson County, Campbell County, Kenton County, Boone County, Gallatin County, Grant County, Pendleton County, and Mason County. 

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Can I Keep My Tax Refund in Chapter 7 Bankruptcy?

The question of whether you can keep your tax refund during Chapter 7 bankruptcy can get quite complicated. Normally, a bankruptcy trustee will take a portion or all of your annual tax refund as part of the bankruptcy estate and use it to pay creditors. The reason for this is because when you file for bankruptcy the trustee determines what is a part of your bankruptcy estate. A trustee has the power to list several types of assets as part of your bankruptcy estate including money in the bank, your home, your vehicles and even pieces of personal property.

The definition of assets for your bankruptcy estate is quite broad and includes anything that is due to you from transactions and work prior to filing for bankruptcy. Which means your tax refund from last year would be considered a part of the bankruptcy estate, even if you didn’t file taxes before bankruptcy proceedings.

Your tax refund the following year that includes income from when you were going through bankruptcy is handled a little differently. You will be entitled to any refund based on income you earned after the filing date. So, if you filed for bankruptcy in December 2015, all the income you earned in 2016 after the bankruptcy filing date won’t be considered part of the bankruptcy estate. That means if you’re given a tax refund in 2016 you can keep a portion or all of it. 

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Can I Keep My Tax Refund in a Chapter 13 Bankruptcy?

Chapter 13 bankruptcy has different procedures when it comes to tax refunds. Depending on the situation, you may have to give up your refund to go towards your debt payments. However, if you’re keeping up with your set payments outlined by the court, then the court may allow you to keep your tax refund.

A trustee during Chapter 13 bankruptcy develops a repayment plan so you can pay all or a portion of your outstanding debt. You will be obligated to follow this payment plan for several years until all your debt is resolved. The plan is determined by how much you earn, your essential costs, and how much disposable income can be geared towards your debts. Often this payment plan will take into account your tax refund.

Most people going through Chapter 13 bankruptcy will have to give up their tax refunds. However, if the trustee finds you’ve met all your payments and continue to do so without the help of a refund, then they may allow you to keep it. This is usually after you’ve been on a court-imposed payment plan for at least one year.

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What Bankruptcy Exemptions Allow You to Keep Your Tax Refund?

Generally, a trustee will take part or all of your tax refund and include it as an asset of the estate. There are, however, a few exemptions that may allow you to keep a part or even all of your tax refund. The Earned Income Tax Credit and Additional Child Tax Credit are exempt from bankruptcy proceedings under Chapter 7 bankruptcy in Ohio. So, if you qualify for a refund under either of these credits, you will be allowed to keep it. You can also choose to protect your whole refund with something known as a Wildcard Exemption, which allows you to keep up to $1,225 of value in any property. 

Exempting your tax refund from your bankruptcy estate under Chapter 13 is much more complicated. Tax refunds are usually automatically allotted in the debt reorganization plan set forth by the trustee. You can save your tax refund, however, by filing for a plan modification. The modification if granted will allow you to spend a large sum of money not accounted for in the plan on some sort of unexpected expense. That way you can use your tax refund but only If it goes towards a necessary expense such as unexpected auto repairs, appliance replacement, medical and dental bills, or funeral expenses.

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Additional Resources

Declaring Bankruptcy | IRS – Visit the official website for the Internal Revenue Service (IRS) to learn more about bankruptcy as an option for tax debt. Access the site to learn more about tax refunds in relation to bankruptcy, filing past due tax returns and other types of bankruptcy. 

Basics in Bankruptcy | U.S. Courts– Visit the official website for the United States Courts to learn more about Chapter 7 and Chapter 13 bankruptcy. Access the site to learn more about discharged debts, the differences between the two types of bankruptcy, exemptions for both and other relevant information.

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Tax Refund Bankruptcy Lawyer in Cincinnati, OH

Are you under mass amount of debt and have little to no options? Get in touch with Steiden Law Offices to review your legal options and get one step closer to financial freedom. At Steiden Law Offices, we pride ourselves on what we do and have the record to prove it with over 15,0000 successful filings. Instead of wondering what you could do next, be proactive by calling Steiden Law Offices. Tackling your financial health is only phone call away.

To set up your first consultation with Steiden Law Offices call us at . At the consultation attorney Eric Steiden will sit with you and analyze your current situation. He will then develop a plan to resolve your debts and disclose to you all your available legal options. Steiden Law Offices has four office locations with two in Cincinnati, Ohio and one in Florence and Covington, Kentucky. However, we proudly represent individuals all throughout the area including Kenton County, Boone County in Kentucky and Hamilton County, Ohio.

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Maineville, OH
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