Tax returns can be thousands of dollars most people take into account each year and if you want to keep a refund from a bankruptcy trustee you should read this post. My clients use this money to chase unpaid bills or utilities; stuck on a mortgage or lease; maybe a car down payment; or even home improvement or clothing for the kids. If you want to save your tax return, here are a few things you need to know.
1. Federal tax returns are not deductible from the IRS. They can be decorated from your bank account after you receive them. If you want to keep your federal tax return from judgment creditors dotting you then avoid direct deposit and get a check mailed to you. Cash. spend. Store it in a jar under the chicken coop. Don’t put it in a bank account that you think the lender will garnish.
2. State refunds in Michigan may be garnished by a creditor judgment from the Department of the Treasury. Judgment creditors don’t have to wait for it to hit your bank account. The only thing you can do to stop this type of deduction is to file for bankruptcy protection. If you file after it’s decorated and sent to a creditor judgment, you may be able to recover it as preferential payment.
3. Disclose, disclose, disclose all assets. A tax refund or credit is an asset even if you haven’t received it. You must disclose what you think or know you will get on Schedule B and exclude refunds on Schedule C. Failure to include a tax refund on an asset will likely result in the loss of your tax return to the Trustee. It is the duty of the Trustee to seize non-exempt assets for the benefit of creditors.
4. If you are on Chapter 13, you may be able to keep part or all of your Federal tax return. You must submit your Federal tax return to a Chapter 13 Trustee for distribution to your creditors. Your bankruptcy judge may let you keep it if you can show you need it. Maybe you need it for necessary home repairs, car repairs, or a new washing machine if the old one is broken.
5. Prepare your tax returns. This sounds so basic but it’s true. Bankruptcy requires that all of your tax returns be filed by Section 341 of the Creditors’ Meeting. Failure to do so may result in dismissal of your case. Also, if you don’t know what you’re getting back, you won’t be able to protect it. Your Chapter 7 Trustee can open your case until the tax return is complete so he can see how much money he can confiscate.
If you and your attorney know these ground rules, you excel at safeguarding your tax returns and credits. To learn more about bankruptcy, please take a moment to visit my website at: Downriver Bankruptcy.