If you are considering filing for
Chapter 7 bankruptcy, it is important you consider the effects that bankruptcy will have on
your income taxes. Your ability to keep your refund will be affected by
the amount of money in your refund, your exemptions, and when you file
Which Exemptions Should I Choose?
Upon filing for
bankruptcy, nearly all of your assets will become part of the bankruptcy estate,
including any tax refunds you have not yet received. Any tax returns that
are not exempt are subject to being claimed by creditors. Therefore, the
only way to protect your tax return is to exempt it in some form. People
who file for bankruptcy in Texas are given the option to exempt certain
property under either state or federal exemption standards. A person must
choose one or the other and may not mix the two plans. An attorney can
help you choose which exemption structure is right for you.
While Texas exemptions are generous and will often allow a person to keep
their home and large amounts of property, tax returns are not covered
under state exemptions. If you wish to protect your tax return, you can
do so under the federal “wildcard” exemption up to $1,225
plus any unused portion of the federal homestead exemption, totaling up
to $12,725. It is important to keep in mind, however, that choosing federal
over state exemptions may not be wise if you have significant equity in
your home or large amounts of personal property.
What if I Can’t Exempt My Refund?
If it is more advantageous for you to choose state exemptions, there are
other ways of protecting your tax return. If you have the ability, simply
wait until you have received and spent your tax return before filing for
bankruptcy. If you spend your tax return on another asset, however, it
will be subject to being claimed by creditors unless exempted. It is encouraged
that you spend your tax return on living expenses prior to filing for
bankruptcy, such as for food, gas, or car insurance.
Contact the Pritchard Law Firm Today
If you are struggling to make ends meet under the weight of crippling debt,
a Fort Worth bankruptcy lawyer from The Pritchard Law Firm can examine
your financial situation and guide you through the process of filing for
bankruptcy. Having earned a 2015 Avvo Clients’ Choice Award for
our outstanding advocacy, we can provide the knowledgeable guidance you
need to help you get through this difficult time and on the road towards
a debt-free future.
To find out more about what our 45+ years of experience can do for you,
contact our office online or give us a call today at (817) 727-4001.