When someone makes the decision to file for bankruptcy, timing is everything. Once the new year begins many people have buyer’s remorse from the frenzy of their holiday spending and decide that they need to file for bankruptcy for their New Year’s resolution. This happens almost every year after reality emerges and there is not enough money to make ends meet. What these people don’t think about is that tax season comes quickly after the new year and those who rely on their tax returns as pennies from heaven usually don’t think about it before filing for bankruptcy. That’s why it’s a good idea to cover all the basics and ask the question, can I forfeit my income tax return and bankruptcy filing?
The simple answer to that question is yes. That’s why it’s important to have a bankruptcy attorney help with individual files. A bankruptcy attorney will know when to petition to protect their income tax returns if necessary. Every income becomes part of the bankruptcy estate when filing for bankruptcy. In fact, the trustee will usually look back six months and the money received during this time will be considered as income. Worse, large government checks that are not covered by bankruptcy exemption laws are fair game for the bankrupt trustee to use to repay creditors. When filing for Chapter 7, bankruptcy attorneys will look at all cash, savings, and other assets that can be easily liquidated and protect those who use bankruptcy exemption laws. Where there is a problem is when someone doesn’t think about an on-the-go income tax return from the federal or state government and the bankruptcy trustee finds it. If the attorney had no knowledge of it, it would most likely be left unprotected and swallowed.
This is why it is so important to make sure that someone has a lawyer they trust and feel comfortable sharing intimate financial details with. Holding back is not an option. Trying to hide a credit card or some property on the side will only end in disaster in filing for bankruptcy. In this highly technology-driven world, bankruptcy trustees have many tools in their bag of tricks to get information about individuals who file for bankruptcy. The last thing someone wants to hear at a 341 meeting is that the trustee found some undisclosed property or income. Lawyers will have eggs in their faces as well as debtors and digging will begin.
Just because someone plans to get their taxes back, doesn’t mean they shouldn’t file for bankruptcy if it really is necessary. Most states allow generous exemptions to protect a large number of properties including wild-card exemptions that can be used for anything, including checking income tax returns. As the economy tightens, most people rely on these annual refunds as some kind of crazy money or to be frugal, just a way to get a little more comfortable for a few months. The number of these checks in the next few years will probably decrease as the Affordable Care Act comes into effect. Every American will need more money to help pay for health care so less has to be refunded at the end of the year. The bottom line is, if someone needs to file for bankruptcy, then file. They should speak to a bankruptcy attorney and be completely honest about the possible windfalls that may occur in their future so that the attorney can plan accordingly and even delay filing the petition if necessary.