I’m Expecting a Tax Refund—When Should I File Bankruptcy?

This is the time of year when people are preparing to file their income tax returns. Most of the clients I see are expecting, and hoping for, a large tax refund. Ideally, you should not have much of a tax refund coming, if you are having the right amount of taxes taken from your paycheck. But, many people count on a large tax refund as a “bonus” at the beginning of each year. If you have debt problems and are thinking of filing a bankruptcy case, you need to be careful or you could lose that “bonus”.

It is important to discuss the timing of your bankruptcy filing with your attorney, especially if you are counting on a large tax refund (more than $1,000.00). When filing a bankruptcy case, timing is everything. Depending on when you file your case, the bankruptcy trustee in a Chapter 7 case could take the refund and use the money to pay your creditors.

In Illinois, for example, people are only allowed to protect $4,000.00 of all their personal property (called the “wildcard” exemption). That includes all money in the bank and things in your house. And, that includes any potential tax refunds not received. So, it is important to discuss everything you own, along with any tax refund you might get.

With proper planning and review with your attorney, you may be able file a bankruptcy case and avoid losing your tax refund. Each person’s situation is different, though.

Before you get your tax refund, it is best to call an experienced bankruptcy attorney to review all of your options and decide your best course.

Daniel J. Winter
BankruptcyLawChicago.com
djw@DWinterLaw.com
312-789-9999

Offices in Chicago, Oak Lawn, Skokie, and Lake County, Illinois.