Posted on Wednesday, January 20th, 2016 at 10:18 am
The beginning of the year is always the busiest season for filing bankruptcy. Nobody likes to think about their financial troubles during the holidays, and often the holiday spending that so many businesses rely upon is the same tipping point for balanced debt to begin spiraling out of control. But the beginning of the year is also when many people get tax refunds. If the tax refund can cover the credit card bills, disaster may be averted. But if not, Northern Kentucky debtors need to figure out how to protect that tax refund in bankruptcy.
In the Northern Kentucky and Cincinnati, trustees always watch for bankruptcies filed during the first half of the year that do not properly protect a tax refund. Although the debtor’s tax refund can be appropriately reported and exempted in a Chapter 7 or Chapter 13 bankruptcy filing, do-it-yourself filers or inexperienced attorneys often fail to complete this crucial step. If the tax return is not properly reported or exempted, the trustee can seize the refund and use it to pay creditors. It is therefore very important to get an experienced bankruptcy attorney to properly file and protect the tax refund.
How can the Tax Refund Be Saved in My Bankruptcy?
A tax refund must be listed as an asset in the bankruptcy filing, even if the tax return has not been filed yet and even if you don’t know how much the refund will be. A reasonable estimate of the refund must be given, although you can also say you don’t know exactly how much the refund is. Trustees in Chapter 7 or Chapter 13 carefully review refunds for debtors that have minor children. Having minor children causes the earned income credit to be applied, and this generally provides for a high tax refund. However, the entire earned income credit can be protected from the bankruptcy trustee – again, this is something only an experienced lawyer knows how to do properly!
Chapter 7 trustees in Northern Kentucky are typically more likely to be aggressive in pursuing a high tax refund than a Chapter 13 trustee, since the Chapter 7 trustee can seize the refund outright if it is not exempted properly. This is, in part, how a Chapter 7 trustee gets paid. In Cincinnati, both the Chapter 7 and the Chapter 13 trustees are fairly aggressive in pursuing tax refunds.
There is no specific exemption in the bankruptcy code for a tax refund, so the wildcard exemption has to be used. In Cincinnati, this is a big problem because the wildcard (or miscellaneous) exemption used in Ohio is small. In Northern Kentucky, this is less of a problem because Kentucky law allows debtors to use the federal wildcard exemption. The federal wildcard exemption is very large and most tax refunds will be protected by it.
However, in Kentucky the federal wildcard exemption is also used to cover many other assets, such as the money in the debtors’ bank accounts, any firearms in the home, and any equity the debtor has in a second car. Thus, it is possible that, without proper legal advice, even a modest tax refund could go beyond the limits of the exemption and be taken by the trustee.
How Can Lawrence & Associates Help Protect My Refund?
Experienced bankruptcy lawyers make a big difference. In our consultations, Lawrence & Associates will explain how your tax refund can be spent on reasonable and necessary household expenses to protect it from seizure by the trustee. The lawyers at Lawrence & Associates have spent years learning exactly which expenses can be used to offset the tax refund and which cannot, thus avoiding the risk that the trustee will take the refund or delay the bankruptcy. Details matter, and our attorneys and paralegals are trained to find the details in your life that keep thousands of dollars of tax refunds in your bank account. Lawrence & Associates has been very successful over the years at putting money back in our clients’ pockets by offsetting their tax refunds with our attorney’s fees and thus protecting the debtor’s hard-earned cash from seizure by the Chapter 7 trustee.
You should not put off filing for bankruptcy if your debts cannot be repaid under your current interest rates, or if you are behind on payments and in danger of being sued or having a vehicle repossessed. Lawrence & Associates can help Northern Kentucky and Greater Cincinnati clients protect their assets. We are Working Hard for the Working Class. Call us today and learn how we can help you!