Clients often ask how they can protect their tax refund during bankruptcy. Each case is different, so if you are expecting a tax refund be sure to consult with our office as soon as possible. In most cases there should be no issue for you to keep your tax refund.

I have put together a few ways that you can help keep your tax refund during bankruptcy. Keep reading to learn more.

Tax refunds are considered an asset and like any other asset in bankruptcy you may be able to claim exemptions allowing you to keep your refund. Each state handles exemptions differently. New Jersey uses the federal exemptions. They are fairly generous. Individuals may exempt $12,725 in any property. This amount is doubled if both spouses file. This is almost always sufficient to cover tax refunds completely. You will be able to keep your refund and use it how you wish if your entire refund is covered by an applicable exemption.

The critical advice is to speak with an experienced bankruptcy attorney first. With careful planning, you will have no issues with exemptions for tax refunds.

If you receive your tax refund shortly before you file for bankruptcy it is important to make sure you spend the refund appropriately. Money spent before you file for bankruptcy is no longer your asset, meaning you no longer need to be concerned whether it is exempt or not. However, it is important to note that you must have spent your tax refund appropriately. For example, using a tax refund to repay loans to family members may cause issues. There is no exemption allowed in that event. All financial transactions are investigated by your bankruptcy trustee.

Be sure to consult with an experienced NJ bankruptcy attorney before you spend your tax refund. There is life after bankruptcy and it starts here. Contact Tom Orr today to review all of your options and how to regain control over your financial life.