Tax refunds are treated differently depending on whether you file Chapter 7 or Chapter 13 bankruptcy. In a Chapter 7 case, if a debtor files a tax return before filing bankruptcy but receives a refund after their bankruptcy case is filed, they may have to turn the refund over to the bankruptcy trustee so that the funds can be paid to the creditors in the case. In general, the best strategy for protecting your tax refund in a Chapter 7 bankruptcy case is to file the case after you have already received the refund. Once you have the refund in hand, check with your attorney to see if the money can be exempted from the bankruptcy estate and if it cannot be exempted spend it on reasonable and necessary expenses before the bankruptcy case is filed.
Chapter 13 bankruptcy cases last from three to five years, so in these types of cases it is less about the timing of when you receive the refund and more about how much is received. The Chapter 13 Trustees in Fort Worth, Dallas, and in Plano, which preside over Chapter 13 cases for nearly all residents in the Dallas/Fort Worth area, will allow you to keep the first $2000 of a tax refund. Any additional amount is retained by the Trustee and applied toward claims filed by unsecured creditors in the bankruptcy case. In some cases this means that the debtor will finish their bankruptcy case sooner.
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