Are tax refund exempt in bankruptcy?
Are you wondering if you can keep your tax refunds if you file bankruptcy?
Or, will you lose your state and federal tax refunds after filing bankruptcy?
Tax season is upon us.
Many taxpayers are awaiting their highly anticipated tax refunds from the IRS, Kansas, or Missouri. Families are busy contemplating the best way to take full advantage of their refunds.
Those debtors with very low debt, may decide to pay off their credit cards or medical debts. Other debtors realize their hard earned tax refunds will not make a life changing dent in their unsecured debt totals.
Chapter 7 Bankruptcy:
As a general rule in a chapter 7 Kansas bankruptcy case, tax refunds are not protected. This means if you file your bankruptcy case, then receive a tax refund you will be required to pay over your entire tax refund or a portion of your refund to the trustee.
Kansas has adopted an Earned Income Credit (EIC) exemption in an attempt to protect the portion of your tax refund that is associated with the EIC.
In a Missouri, chapter 7 bankruptcy case tax refunds are not specifically protected. However, Missouri debtors can take advantage of a wildcard exemption that could be used to protect at least a portion of their tax refunds.
Chapter 13 Bankruptcy:
In a chapter 13 Kansas or Missouri bankruptcy case, whether you will have to pay over your tax refunds during the course of your case depends on the circumstances surrounding your particular case.
We find most debtors have a real need for their tax refunds and cannot take the risk of losing the refunds during a bankruptcy case. It is usually a good idea for debtors to spend down their tax refunds on necessary and approved expenses.
It is also a good time of year for debtors to review their withholdings to ensure they are receiving the lowest tax refund possible.
Tax season is the time when families begin to question whether a bankruptcy might be their best option at a fresh start. It is acceptable in Kansas and Missouri to use your tax refund to pay for a bankruptcy attorney’s fees.
Now is the perfect time to schedule a free consultation with our Kansas City bankruptcy attorneys to discuss your options and how you can properly spend your tax refunds.