This time of year many people are checking the mail box (or bank accounts if they choose direct deposit) for their tax refunds. Many people are counting on the “extra” money to catch up on a bill or get some repairs done to the car. For people who have filed for Bankruptcy, or are thinking about filing, it is important to keep in mind that the refund is an “asset” that must be disclosed on Schedule B. It is almost the same as a bank account or even cash because it represents your money, even if you do not yet have it in hand. If exemptions are available, such as the wild card exemption in Georgia, using it on some or all of the expected refund is something to be considered. Expect the Chapter 7 Trustee or Chapter 13 Trustee to ask if you have filed your 2013 tax returns (which you should have provided) or when you expect to file them and how much you are getting back.
Whether or not you will lose your unexempt refund depends on many factors. If it is a Chapter 7 case, most Trustees will not want to take a small refund as it would cost more to administer the case than it is worth. They normally look for four figure refunds to justify the costs. If you file a Chapter 13 case, it is a little different. You can still use your exemptions, but the unexempt portion of the refund may affect how much you have to pay creditors in your Chapter 13 Plan. In addition, future tax refunds during the life of your Plan are treated as income and typically are turned over to the Trustee unless all claims are being paid in full or all disposable income is already being paid in the Plan.
While it is important to see a good Bankruptcy lawyer well in advance of filing a case, it is especially important when there are significant cash assets that may tempt a Trustee. It is often wise to wait for the refund before filing unless there is a true emergency (such as a foreclosure). To speak with or set up a meeting with an experienced Georgia Bankruptcy Lawyer or Metro Atlanta Bankruptcy Lawyer, see the contact page and call or send us a message.