With the U.S. federal income tax filing deadline approaching next Tuesday, my firm will inevitably get multiple questions concerning the impact tax refunds have on bankruptcy cases. In general, it is better to have filed your taxes before filing for Chapter 7 or Chapter 13 bankruptcy. Every year, many people use their tax refunds to pay for the fees and costs of filing for bankruptcy.
Because many clients who are filing bankruptcy have multiple financial issues that they are facing, it is not uncommon for some clients to have not filed tax returns in years. Such cases can pose a potential problem for these clients, because the U.S. Bankruptcy Code requires that you file all tax returns before you can file bankruptcy.
How you spend your tax refund could have a tremendous impact on your bankruptcy, as any purchases you make with the refund will be considered an asset and could be seized by the trustee. The tax refund is considered an asset and you will have to be able to exempt it in order to protect it.
A Maryland or Washington DC bankruptcy lawyer can help advise you on the best way to file taxes in conjunction with filing Chapter 7 or Chapter 13 bankruptcy, and on Wednesday I will discuss how your future tax refunds are affected by filing bankruptcy.