Oftentimes, bankruptcy filers worry that if they file their taxes before their bankruptcy petition, they will be forced to forfeit their tax refund to the bankruptcy court or creditors. According to bankruptcy laws, debtors must be current on all tax filing obligations to federal and state taxing authorities in order to file for bankruptcy. This rule applies to income taxes, personal property taxes, real property taxes and all other forms of taxes. The best course of action for potential bankruptcy filers is to file their taxes as far in advance of the bankruptcy filing as possible. As long as you obtain your tax refund and spend it on household expenses, car or home repairs, medical expenses, etc. prior to filing for bankruptcy, the court cannot require you to forfeit the refund. This is true regardless of the amount you receive in your refund.
In the event that your refund is due after bankruptcy has been filed, your refund is subject to state or federal exemption limits. If the debtor elects to use federal exemption amounts or the state’s exemption schedules, the refund may be retained by the debtor and is outside the grasp of the bankruptcy court and creditors. It might also be within partial or total reach of creditors if exemptions are exhausted by the debtor’s other claimed property. The most common occurrence is one where the debtor would retain part of the refund and part of it would go to the creditors because the exemption amount is exceeded by the size of the refund. Again, the best thing to do is file your tax return as quickly as possible to avoid losing any of it. A debtor can also apply part or all of the refund to next year’s tax liability to avoid losing it to creditors.
If you are in a financial crisis and are considering filing bankruptcy, contact an experienced Miami bankruptcy attorney who can advise you of all of your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade & Garcia, P.A. has been helping people from all walks of life build a better tomorrow. Our attorneys’ help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade & Garcia website at www.miamibankruptcy.com.