This is a big topic for people facing bankruptcy this time of year. (For those reading this a bit later, we’re looking at early February as the time of this post). Many folks are getting ready to file their tax returns and counting on an important refund.
If you have filed for bankruptcy recently and had to use 704 exemptions for any reason, it is likely that this refund is going to be left unprotected as you move through your case. This means that the Chapter 7 Trustee can use his power to take your tax refund and use it to pay off your creditors.
Remember, this is normally reserved for people who have chosen 704 exemptions in their bankruptcy case. This can happen for a few reasons. Protecting equity in your home is one reason to choose the 704 exemption scheme. This is usually the best reason. Others are forced to choose the 704 exemption scheme if they are married and their spouse is not filing with them, nor will the spouse sign a spousal waiver form.
If you are choosing the 704 exemption scheme, you will find it difficult in many areas to protect your property. Usually, you will still find significant savings even if you have to forfeit your tax refund just this once.
But careful planning could have you delay your filing until you have filed your taxes, received your refund and spent that refund on reasonable and necessary things for you and your family. It really is important that you have a trusted attorney who is able to spot these potential problems in your case before you file.
Yes, some bankruptcies are very simple. But many of these cases involve small details that can mean the loss of a lot of money. Find a lawyer you can trust and whatever you have to pay him, will come back to you ten fold in terms of a strategy that can make your bankruptcy go smoother.