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If You File Bankruptcy, Can You Keep Your Tax Return?

Anyone considering a bankruptcy filing has probably wondered what might happen to money they make after they’ve filed their case.

In particular, many filers ask what might happen to a tax return received after a bankruptcy filing. This is an important question to ask, whether you’ve already filed your case or are planning to do so in the near future.

Bankruptcy and Tax Returns

Here are some issues that come up concerning bankruptcy and taxes.

  • Tax returns as part of income: If a filer expects a tax return for the year in which she files her bankruptcy petition, she should indicate this on her bankruptcy forms. The tax refund may count toward part of any allowable cash exemption in Chapter 7 bankruptcy, and in Chapter 13 bankruptcy could be used toward the repayment plan.
  • Unexpected tax returns: If a filer receives a tax return but did not predict it on his bankruptcy petition, he must contact his bankruptcy lawyer or bankruptcy trustee to see how the return will be handled. In both Chapter 7 and Chapter 13 bankruptcy, an unexpected return could go toward partial creditor repayment.

Avoiding Bankruptcy Fraud

So why is it important to tell your lawyer or trustee about income from a tax return? Because not disclosing that you have received or expect to receive money (from any source) could qualify as bankruptcy fraud. Those convicted of bankruptcy fraud are not eligible for the bankruptcy discharge and could face steep fines and even jail time.

Besides not declaring income, these actions could also constitute bankruptcy fraud:

  • Filling out forms incorrectly or incompletely. While the court may make exceptions if it seems like an error was an honest mistake, it’s a good idea to double-check all information on bankruptcy forms.
  • Failing to indicate disputed debts. If a filer and a creditor differ on their views of what the filer owes on a certain debt, it’s important to note the discrepancy in bankruptcy forms and ask a lawyer for guidance.
  • Paying some debts before filing. Filers who attempt to repay friends or family members before filing for bankruptcy can be charged with fraud.
  • Not disclosing all assets. This might include income, expected income, inheritance or any other possessions.

It’s important to note that all situations are different and that if you want specific guidance about your situation, you should contact a bankruptcy lawyer practicing in your state, which you can do by filling out this form.


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