Will bankruptcy affect my tax refund?

Will bankruptcy affect my tax refund?

| Feb 16, 2021 | Chapter 7, chapter 7 bankruptcy

When you file Chapter 7 bankruptcy, it seems to turn your finances upside down. There are many rules that you must follow or you could end up in trouble with the court.

The trustee in your case will give you instructions on various things, and what will happen with your tax returns may be one of them if you file around tax time. When it comes to your tax refund, the IRS says you can receive one during bankruptcy prior to your discharge. However, there may be exceptions or changes in how things occur.

Delays

You may have a delay in receiving your refund. It depends highly on your case and the contents of your refund. For example, if you receive a refund of the taxes you paid, the trustee may decide to put a hold on those funds. He or she may tell you to file, but that you cannot do anything with the refund until he or she tells you it is yours to use as you wish.

Seizure

The trustee in your case may decide to take your refund and use it to pay your debts. Do note that the court cannot take Earned Income Credit refunds. So, if your refund is only EIC, then the trustee will not take it, but he or she can take any part that is money you paid and get back.

Regardless of what may happen in your case, you must follow the directions the trustee gives you. He or she will probably advise you about your ta return during your initial meeting. You can also ask if the trustee does not mention the refund.