When you are struggling with debt, thinking straight is not expected. While filing for bankruptcy, hiring skilled bankruptcy lawyers can help you deal with any issues which arise, later on, say lawyers of Dallas based bankruptcy law firm Recovery Law Group. One of the most common problems people face is a failure to remember tax refunds while listing their assets in bankruptcy schedules. Just like any other asset, income tax refunds should also be treated similarly, except that they are held by the government. The bankruptcy trustee has to deal with the tax refund depending on the month you file for bankruptcy. If you file in May, the trustee might have an interest in 5/12 of the next year’s tax return.
While filing for bankruptcy, a debtor can protect their assets with the help of federal or state bankruptcy exemptions. Through these exemptions, you can protect a certain amount of property. however, you need to mention them while filing bankruptcy papers. Any objections to the exemptions need to be addressed within 30 days of bankruptcy filing through a 341 meeting. There are different strategies when it comes to handling tax refunds. These include:
- Waiting till you get a refund and then filing for bankruptcy.
- Spending refund on essential expenses like grocery, utilities, etc. and filing for bankruptcy.
- Adjust your deductions to reduce the refund amount to an insignificant number.
- Use the amount to cover the bankruptcy trustee’s interest in next year’s return.
In case the exemptions can be used to save more money elsewhere, debtors can let go of the tax refund too. If you have doubts about how to protect your tax refunds, you can speak with experienced bankruptcy lawyers at 888-297-6023.