Tax Refunds and Bankruptcy

Tax season is right around the corner.  A common question is, “What will happen to my tax refund?”  The timing of your bankruptcy filing is important.  If you have NOT received your tax refund yet and file for bankruptcy, the tax refund can later be taken by the trustee appointed to the bankruptcy case.  

The best way to avoid having the trustee take your tax refund is by spending the tax refund first before filing for bankruptcy.  It is important that your tax refund is spent on normal expenditures – rent, mortgage, food, car payments, utilities, etc.  Do NOT spend it on luxury items such as jewelry or vacations.  The trustee can possibly ask for documentation on how the tax refund was appropriated.

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