Getting a tax refund
is something that we
can look forward to. It's nice knowing the government owes you money after
you've paid your taxes, because we may need those extra dollars for perhaps
several different reasons. However, there are some cases in which you can
lose that tax refund to your creditors.
How is that possible? After all, it's your money. However, you can lose your
tax refund to a bankruptcy trustee if you have filed for bankruptcy.
Because you didn't have enough money to pay your bills is really the only
reason you would file for bankruptcy. If you do file for bankruptcy and are
relieved of your obligation to pay your creditors back, there are certain
rights you are no longer entitled to when it comes to your tax refund. The
bankruptcy trustees may be able to take a fraction or sometimes all of your
tax refund, but only under certain circumstances.
Filing Before January 1st if you file for bankruptcy before January first,
the bankruptcy trustee can usually only take a portion of your tax return.
Still, this sometimes only applies depending on certain circumstances, like
which state you live in and other factors like that. Often though, say if
you file for bankruptcy around September, that's 3/4 of the previous year,
so they can only take 3/4 of your tax refund. This is called a pro-rata
portion of your income tax.
Filing After January 1st Filing for bankruptcy
after January first will
usually give the trustee the right to take all of your tax return. This
usually only applies if you file bankruptcy between the beginning of the
year and the time you receive your refund. If you get your refund and then
file, the trustee may only be able to take part of your refund.
Filing Jointly If you are married, you may have filed a joint tax return
with your spouse. If you filed for bankruptcy afterward, but only one of you
filed, the other may still get their share of the tax return, because that
spouse does not have to suffer the consequences of bankruptcy. Therefore if
you filed for tax returns jointly and only one individual files for
bankruptcy, you will still get half of your joint tax return.
Spending Your Tax Return Money If you spend the money you got from your tax
return money before you file for bankruptcy, then the bankruptcy trustee
will usually not demand it of you. However, what you spent that money on
makes a difference in whether or not they will ask the money of you.
If you use your tax return money to pay someone back, like any kind of
creditor, including family and friends that you may have borrowed money
from, then the bankruptcy trustee will ask that you pay the amount you
received in your tax return. But if you do not spend it to repay someone and
spend it on something like getting your roof fixed or repairing your car,
they will usually not go after you to get that tax return money.