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Tax Refunds and Chapter 7 Bankruptcy.

Read on to keep your tax refunds in a Chapter 7 Michigan bankruptcy. Debtors must list and disclose all assets when they file their petition. This includes any owed tax refunds not yet received. Future tax refunds are an assets and must be listed, disclosed, and exempted in order to keep them. It is the Chapter 7 trustee’s job to collect any non-exempt assets for the benefit of creditors. It isn’t personal, it’s the trustee’s duty to do this. Once you understand this, it is easy to protect and keep your tax refunds.

List It or Lose It.

Disclose, disclose, disclose.  A tax refund is an asset even if not received. If you know the amount you are getting, list the exact amount. If you don’t know, estimate your anticipated refund. A debtor will forfeit an asset they fail to disclose. Just because you disclose an asset doesn’t mean you will lose it so list it.

Prepare your Tax Returns

A debtor has a duty to keep financial records in order to verify their financial situation. Debtors must submit the two most recent tax returns to the trustee. A failure to prepare and turn over copies of tax returns can result in a dismissal of the bankruptcy. At a minimum, it will cause delay as the trustee will continue your case until received. Remember, it is the trustee’s job to seize unprotected assets and tax refunds are some of the easiest assets to seize.

Exempt and Protect Refunds

Generally, a debtor keeps property up to a certain value. If the property is worth less than the exemption amount, they debtor gets to keep it. If it is worth more, the debtor can keep the exempted portion but must turn over the non-exempt amount. Typically in Michigan, most debtors use the federal bankruptcy exemptions. These include a “wildcard” exemption able to be used on any asset.

Typically, debtors keep their tax refunds in a Chapter 7. A qualified bankruptcy lawyer knows how to disclose and exempt they debtor’s assets to protect them from the trustee and creditors.

Chris McAvoy is an Allen Park, Michigan attorney who helps people with bankruptcy, divorce, and probate.  To find out more or set up an appointment, click here for contact info. We help  people in Taylor, Allen Park, Southgate, Lincoln Park, Riverview, Trenton, Flat  Rock, Wyandotte, Brownstown, Belleville, Dearborn, Dearborn Heights, and the  Downriver, Michigan area.