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Can the Chapter 7 Bankruptcy Trustee Take My Tax Refund? Answers from a Chapter 7 Bankruptcy Lawyer

When people start looking at options to file a bankruptcy, one of the most common questions they ask a Chapter 7 bankruptcy lawyer is “can the chapter 7 bankruptcy trustee take my tax refund?” There is not a simple way to answer this question. The answer depends on whether or not the trustee decides to include the tax return as part of the Chapter 7 bankruptcy. The answer also depends on the timing of when the filing is complete and the receipt of the refund.

There are steps that one can take in order to help a person keep the tax refund if that is the intention. The best advice we can offer is to come in and speak to a Chapter 7 bankruptcy attorney with regard to your specific circumstance.

Tax refunds may be part of the estate

When a person uses a Chapter 7 bankruptcy lawyer to file for a bankruptcy, the court appoints a trustee to evaluate the assets and debts of the party filing the bankruptcy. The trustee attempts to satisfy as many debts as possible. There is a very good chance that a tax return may, in fact, be part of the assets. As such, the bankruptcy estate may include the tax return. Any asset that can help pay off an unsecured creditor will be used by the trustee; this includes a tax return.

There is a very good chance that the bankruptcy trustee will ask about the status of a person’s tax return during the meeting of the creditors. It is very important to understand what the options are when it comes to a tax return. People need to get an in-depth understanding of how the laws work.

When was the tax return filed?

When considering “can a Chapter 7 bankruptcy trustee take my tax refund?” It is important to know when the tax return was filed. While a tax return may be coming in after the filing by the Chapter 7 bankruptcy lawyer, knowing the filing date of the tax return is critical. If the return was filed before the filing of the case, it may be considered part of the estate.

As such, the trustee can include the tax return as part of the estate and take it. The best advice a person can get is to work with a lawyer to get specific information regarding tax returns.

Take active steps

If a person wants to avoid the tax return being taken by the trustee, then they need a professional who understands the process. Working with a Chapter 7 bankruptcy lawyer is one of the best ways to ensure that a person gets the timing just right. In addition, there are steps that a person can take to reduce their tax return and make sure that it is not taken and given to creditors.

These steps include making an adjustment to the withholdings and receiving a minimal return; spending the refund on specific necessary expenses; and including the refund in the bankruptcy exemptions. The best thing a person can do to answer the question “can the Chapter 7 bankruptcy trustee take my tax refund?" Is to work with a Chapter 7 bankruptcy attorney.

Note: This is for information purposes only and does not constitute legal advice.