Will I Have to Turn Over My Tax Refund to the Bankruptcy Trustee?

As tax time quickly approaches in South Florida, anyone who is considering the possibility of filing for personal bankruptcy may have many questions about their income taxes and their bankruptcy case. In particular, if you know or expect that you will receive a tax refund this year, you may be concerned that filing for bankruptcy will result in you having to turn over any refund you receive to the bankruptcy trustee. If you file for bankruptcy in South Florida, will your individual income tax refund be safe, or will it become the property of the bankruptcy estate? For debtors in Florida, you will likely be able to keep your tax refund. Our West Palm Beach bankruptcy attorneys can explain why.

Tax Refunds Are Usually Exempt in Chapter 7 Bankruptcy Cases for Individuals

As an individual filing for Chapter 7 bankruptcy, you may be aware that all non-exempt assets will be liquidated so that your creditors can receive payments and you can receive a discharge. The good news about your tax refund is that it is most likely exempt entirely under Section 222.25 of the Florida Statutes. This is a generous tax-related exemption and it makes clear that your federal tax refund, earned income credit, and any other refund or credit will be exempt.

The only exception is if you are behind on family support payments, in which case your tax refund could be used for family support you owe.

Assets Are Not Turned Over in a Chapter 13 Bankruptcy Case

In a Chapter 13 bankruptcy case, no assets are turned over to the trustee or liquidated. Accordingly, you will keep your income tax refund or credit.

Business Bankruptcy Will Not Change the Status of Your Individual Income Tax Refund

What about a situation in which your business is filing for bankruptcy? Can the bankruptcy trustee go after your personal income tax return? In short, the answer is most likely no.

If you own a sole proprietorship, you and your business are not separate entities. As such, whether you are filing for either Chapter 13 or Chapter 7 bankruptcy, you will be filing an individual case and the above discussions about Chapter 7 and Chapter 13 bankruptcy will apply to your case. If your business is a separate entity — such as a partnership, limited liability company (LLC), or corporation — your personal assets are very unlikely to come into play or to be relevant to the business’s bankruptcy.

Contact a West Palm Beach Bankruptcy Attorney for Assistance with Your Case

If you are considering bankruptcy and have any questions about how your personal assets will be treated in the bankruptcy case, you should seek legal advice. One of the experienced West Palm Beach bankruptcy lawyers at Kelley Kaplan Delaney & Eller, PLLC, PLLC can begin working with you today on your bankruptcy plans, and we can answer any questions you have about the overall process or specific questions based on your particular circumstances. Call our firm today to learn more about the bankruptcy services we provide to individuals and businesses in South Florida.

Source:

leg.state.fl.us/Statutes/index.cfm?App_mode=Display_Statute&URL=0200-0299/0222/Sections/0222.25.html