Tax refund time is almost here. We always have questions from folks as to whether they can file Chapter 7 bankruptcy before filing taxes and still keep their tax refunds coming to them after they file bankruptcy or whether they can keep a tax refund received right before filing bankruptcy.
The answer is that they generally can keep their refunds, depending, of course, on how large the refund is and what you do with the refund. The general bankruptcy exemptions available under the federal bankruptcy exemptions (which can be used in Kentucky) are usually large enough to protect most tax refunds from being taken by the trustee. You can also use your tax refund to pay the fees and costs for the bankruptcy and your general living expenses such as rent, groceries etc.
Also, if you are thinking about filing bankruptcy, and are going to use your tax refund to pay off a debt to a family member or creditor prior to filing bankruptcy, you should consult with a bankruptcy attorney before doing that. There are provisions in the bankruptcy law which may allow the trustee to take that money back from the family member or creditor should you then file bankruptcy after paying them.
Alternatively, if you just keep the refund and don’t pay any of it to anyone, then the refund may be able to be protected with the exemptions as outlined above.
Keep in mind that all of the above could also apply to the Stimulus Check that you may receive from the Federal Government.
Your circumstances will be unique, so always discuss your options with an experienced bankruptcy attorney before you part with your tax refund money.