Tax Refunds and Bankruptcy
Even though the tax deadline for 2020 was moved to July 15, many people are currently starting to get their tax refunds in the mail, or have already received them. In light of the global pandemic impacting most Americans in a negative way, a large tax refund check is a welcome financial relief. In this turbulent economic time in our nation’s history, many workers have been forced to work for reduced pay, or have simply lost their jobs completely. However, life continues to move forward, and Americans still have bills to pay. If you are considering filing for bankruptcy due to the economic impact the COVID-19 crisis has had on your family, you may wonder whether you are allowed to keep your tax refund.
How Bankruptcies Work
Most people who have never filed for bankruptcy are unfamiliar with the process. One of the most important aspects of a bankruptcy is that when a debtor files for bankruptcy, an estate is created. This estate is similar to that which is created after someone dies. All of a person’s assets and debts are looked at in unison. All assets that a debtor has are placed into this estate. This would include any tax refund that the debtor received, or plans to receive.
A trustee is appointed in Chapter 7 bankruptcies that will then analyze these assets and debts, and sell (liquidate) any non-exempt assets, and use those to pay any unsecured creditors, such as credit cards or other types of consumer debt. There are some types of exemptions that are available, and debtors do not usually need to sell everything they own in order to complete a bankruptcy. This would defeat the purpose of giving a debtor the opportunity of a financial fresh start. After the bankruptcy trustee calculates the assets, sells the non-exempt assets, and pays the appropriate unsecured creditors, the remaining debt is likely discharged (eliminated), and the bankruptcy will be completed.
Tax Refunds and Bankruptcies
The only part of the tax refund that is typically exempt in the state of Florida is the part considered the Earned Income Tax Credit. The rest of the remaining tax refund typically falls under personal property exemptions. It is always important to visit with an experienced bankruptcy attorney as the law changes in this area and may in fact include Child Tax Credits or other types of Tax Credits in the future.
Contact Us Today for Help
If you are struggling financially, especially due to the coronavirus pandemic, you may be overwhelmed with how to handle your financial losses, your tax refund, and the possibility of filing for bankruptcy. Many courthouses are now physically closed for business in the state of Florida, however, you still have the legal right under the law to file for bankruptcy. It is important to note that the COVID-19 has slowed many legal proceedings. Contact a skilled West Palm Beach bankruptcy attorney attorney at Kelley Kaplan & Eller at 561-264-6850 for a consultation, and to help you understand how bankruptcy may help you, and how you should handle your tax return if you are considering filing for bankruptcy.