When you file a Chapter 7 bankruptcy, the court appoints an individual called the trustee to review your case. The trustee's job is to see if you have anything that they can take to help pay your creditors. The things you own or may be entitled to are called assets. There are laws that allow you to protect some assets so that the trustee cannot take them. One of the assets that many people do not think about when filing a Chapter 7 bankruptcy is their tax refunds. As a result, those individuals who try to file a bankruptcy without the assistance of an experienced bankruptcy attorney frequently lose their tax refunds.
The amount of the tax refund that must be protected varies by when the bankruptcy is filed. If you file a Chapter 7 bankruptcy early in the year, the entire tax refunds for the previous calendar year must be protected even if you have not yet filed your tax returns. Once the tax returns have been filed, you also must protect the entire amount unless you receive the refunds before you file your Chapter 7. Even after you receive the refunds, you must protect the money that you have on hand when your case is filed. If you have taxes being withheld from your wages, you must also protect the refunds you will receive next year. The amount that has to be protected depends on when your case is filed during the year.
In Virginia, Earned Income Credit is considered an asset that you have also. So even if you have not had any taxes withheld from your pay but you receive a refund due to Earned Income Credit, you must protect that refund or the trustee will be entitled to take it. If you are required to turn over some or all of your refunds and fail to do so, the trustee can ask that you be denied a discharge of your debts or have it revoked if you have already received it.
As you can see, protecting your tax refunds in a Chapter 7 bankruptcy is a complicated issue. If you normally receive tax refunds of over $2,000, it will be worth the cost to have an experienced bankruptcy attorney represent you in a Chapter 7 bankruptcy. Contact Hampton Roads Legal Services at 757-320-2010 to schedule a free consultation today.