Bankruptcy Tax Refund – Keep and Spend It Wisely

Many people enjoy receiving a large tax refund during the springtime months of every year.  The average middle class family receives approximately $5000 in tax refunds.  But problems can arise if a member of that family is filing Chapter 7 Bankruptcy before the refund is spent.

To keep your refund and file Chapter 7 Bankruptcy consider this action plan.

File your taxes on or after January 31, 2015 (and later years)

Receive your refund on or after February 28, 2015

Spend your refund on the following categories

1. Bankruptcy Attorney $1500
2. Bankruptcy Filing Fee $335
3. Non-Luxury Goods:
   1. Low to Mid Priced Clothing
   2. Food
   3. Medical Care
   4. Utilities
   5. Car Repairs
   6. Mortgage Payment
   7. Rent
   8. Car Payment

Do Not Spend your refund on:

1. Luxury Goods:  Jewelry, Over priced unnecessary items
2. Gifts to Friends, Relatives and Insiders
3. Do not pay back family or creditors

How much of my refund am I allowed to keep in liquid cash?

As much as your exemptions allow.  In Illinois you can keep $4000 of cash, personal items (including household goods), tax refund, stocks, bonds and other assets.  In practicality – typically less than $1500.

Be careful, seek out the counsel of a bankruptcy attorney to determine if bankruptcy is appropriate debt relief and how and when you should spend your tax refund and in general prepare for your bankruptcy filing.

What happens if I file and then receive a large tax refund – it is part of the bankruptcy estate and you must have exemptions to keep it.