It’s that time again, tax season! You're probably looking forward to receiving a big tax refund check and have been working hard to get your bankruptcy case filed. So, what happens to your tax refund in a bankruptcy case?
We’ve said it time and again, tax refunds are the number one asset that trustees routinely take from debtors. Trustees love to go after tax refunds because, unlike real estate and other assets, there isn’t the overhead and effort associated with listing the property for sale. With cash, they can get a check.
On the day that the bankruptcy is filed, any assets you own become part of the “bankruptcy estate”. Your tax refund is one of those assets. A trustee is appointed to represent your creditors, collecting assets and liquidating those assets to pay your creditors.
In many Chapter 7 cases, there simply are not enough assets or cash to make it worthwhile for the trustee to take those to pay the creditors. Unfortunately, if you are owed a large tax refund, that may be an easy target for the trustee. With a little planning, we can help you keep most, if not all, of your tax refund.