When a Chapter 7 bankruptcy is filed, the court appoints a trustee whose job is to collect assets, turn them into cash, and use that to pay creditors. The pool of assets that can be reached by the trustee, called the “estate” is created on the day that the bankruptcy petition is filed with the court, and consists of everything the debtor owns as of that day. Bankruptcy courts have held that a tax refund, or a portion of it, can be an asset, even though you may not receive it (or even file your tax return) until well after the bankruptcy petition has been filed.
Most courts divide the tax refund in proportion to the point in the tax year when the case is filed. to make it simple, if you filed a bankruptcy petition on July 1, 2007, halfway through the year, 50% of your tax refund can become property of your bankruptcy estate. Obviously, if you file later in the year, that proportion will be greater. as another example, if you filed your petition in January of 2007, your entire tax refund for 2006 might become property of the bankruptcy estate. Note that I said “might”–there are other issues to consider, like any exemption you are entitled to claim, or whether your spouse has filed bankruptcy with you. The impact will depend upon those factors, and especially how you time your filing. and a little planning can go a long way.
Bankrutpcy News » Bankruptcy by Eric SandersonApril 5th, 2011
