Protecting Your Tax Refund In Bankruptcy

If you are expecting to receive a tax refund in the near future, you need to understand how filing bankruptcy can affect that.  When you call me for your free initial consultation, please be sure to mention this, so that we can work together to protect your tax refund in your bankruptcy case.

First, a tax refund is an asset of your bankruptcy estate and subject to the jurisdiction of the bankruptcy courts like any other assets.  You may be able to claim exemptions allowing you to keep your refund. In New Jersey, we use the federal exemptions.  Individuals may exempt up to $13,100 in any property. This amount is doubled if both spouses file. This should be enough to exempt your tax refund completely. Then the bankruptcy trustee will not make any claim to your tax refund and you can enjoy that money.

It is crucial that you review the details of your tax refund with a competent New Jersey bankruptcy attorney to avoid any pitfalls and to maximize your exemption.

If you receive your tax refund shortly before you file for bankruptcy, then it is not an asset of your bankruptcy estate and not the concern of the trustee or court.  The exception is if you use the refund to pay one creditor to the exclusion of your other creditors.  Specifically, you cannot prefer one creditor over another.  So you should not use your tax refund to repay a loan you received from your parents. That would be subject to investigation by the trustee, and possibly your parents would have to give that payment to the trustee to distribute to all of your creditors. On the other hand, you are entitled for example to use the tax refund to pay your regular living expenses in the normal course.

I am a New Brunswick bankruptcy attorney with more than 30 years of experience.  Call me today for a free initial consultation.

Contact Us

Charles D. Whelan III has been committed to excellence for over 30 years. With offices located centrally in New Jersey, he is able to provide businesses and individuals with excellent legal services.

Watchung Office

475 Watchung Ave, Ste 8, Watchung NJ 07069

Scroll to Top