Maybe. It depends really on the day that we file your bankruptcy. So here’s what I mean, here’s an example: Let’s say April 15th comes around, you prepare your tax return and it says you’re entitled to a $3,000 tax refund, and let’s say that we filed a Chapter 7 bankruptcy Petition for you on June 30th the year before. And so, in theory, one-half of your $3,000 tax refund had accrued on the day that we filed your bankruptcy, June 30th, six months of the year have gone by. So the Trustee is entitled to one-half of your tax refund. So the answer is, yes, the Trustee’s entitled to your tax refund; it’s a pro-rata share based on the day of filing, and it has to be a meaningful amount of money, $1,000 or more, or they probably won’t mess with it. If you get a tax refund of $500 and we filed on June 30th, is the Trustee going to take $250? Probably not.
The other part of the question here is: Will your earned income credit, if you’re entitled to receive that, be included in that calculation? And the answer is yes. So sometimes we delay the filing of a bankruptcy just so we don’t lose the tax refund. Usually in the fourth quarter of any year, I will explore with my clients: Are you entitled to a tax refund? Yes. Typically, what is it? If it’s $6,000, $7,000, even $3,000, I will oftentimes suggest to them let’s postpone the filing of your bankruptcy until after the New Year. Go ahead and apply for your tax refund in January as fast as possible. Get your tax refund and spend it on reasonable and necessary expenses. This way the Trustee doesn’t get her hands on it. Then, once all of that refund money is spent, we’ll go ahead and file your bankruptcy Petition and you won’t lose any of that tax refund. Again, that’s exemption planning; that’s part of our job. We’re going to look out for your best interests and make sure that the bankruptcy maximizes the benefits for you, and minimizes the benefits for your creditors.
- Arizona Law Group of Trezza & Associates, LLC,
- 4011 E. Broadway Blvd. Suite 200 Tucson, AZ 85711
- (520) 327-4800