Tax Refund in Bankruptcy

Cathy Moran on the Bankruptcy Soapbox reminds us of an important asset in bankruptcy:  tax refunds.

Your federal and state income tax refunds are property of the bankruptcy estate when you file bankruptcy in Kansas.  That is true for all refunds you are entitled to receive on the date your bankruptcy is filed, which includes the refunds for the year you filed that you will not receive until the following spring.

Example:  You file bankruptcy in January 2009.  The tax refunds for 2008 you will receive in 2009 belong to the bankruptcy trustee.  The trustee also will be entitled to a pro rata share of the 2009 refund you receive in 2010.

Kansas has no bankruptcy exemptions for tax refunds or earned income credits.  Some states do.

In chapter 13 bankruptcy, your tax refunds for years after you filed, we call post-petition years, are also property of the estate.

It is a federal crime to spend a tax refund that should be turned over to the bankruptcy trustee.  Your bankruptcy discharge can be denied.  It does not matter how much you need the money. The refunds will be sent to you and it is very tempting to keep the money.  Stop and call your lawyer to make sure you understand exactly what you are required to do with your tax refunds!

About Jill Michaux

Jill Michaux is a Kansas bankruptcy attorney with Neis Michaux Law Office. She and her partner, Mark Neis, are Topeka's only consumer bankruptcy law specialists. They are board certified by the American Board of Certification.

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