Tax return season is often an exciting time for people … if you’re getting money back. When you have to pay money to the government, it’s a different story. Either way, it’s important to understand how your bankruptcy will affect your tax return (and taxes, in general).
How Bankrupcty Could Impact Your Tax Return
- I’m expecting a tax refund.
- If you haven’t yet received your tax refund, we’ll need to check to see if you can exempt it. Often, we’re able to exempt the whole tax refund! That means, you’ll keep all of it.
- If we can’t exempt your tax refund, you’ll have two options:
- You can wait to file your bankruptcy until after you have received your tax refund and have some time to spend it down to what you can exempt on necessary things. If that’s the case, talk to the Steffens Law team about what you should spend your tax return on!
- If you don’t want to wait to file your bankruptcy, you’ll have to pay the non-exempt portion to the trustee who will distribute the funds to your creditors. (This is often much less than what you owe your creditors.)
- If you can exempt your tax return, make sure to follow these guidelines:
- If you’re waiting for your tax refund and expect to receive more than $3,000 (and you typically receive income credit), put it on a brand-new prepaid debit card and don’t deposit any other funds on that debit card. We’ll need to show the trustee that only the money from the tax refund is on that card.
- Do not put the refund in someone else’s bank account.
- Once you receive your tax refund, be cautious and always keep track of where you spend it! Do not pay your family members back for any debts you owe them and make sure you can prove to the trustee where the money was spent. Trustees pay a lot of attention to large transactions and spending a lot of money over a short period of time. Keep your statements, and be prepared to explain to the trustee how you spent your refund.
- I’m expecting to pay money to the IRS.
- If you are expected to pay in for taxes this year, the best option is to try to file the paperwork as soon as possible and pay the tax debt so it doesn’t build interest. If it’s a large amount, try to work with the IRS to come up with a payment plan.
- Remember, the tax debt won’t be erased by the bankruptcy.
Contact Our Nebraska Bankruptcy Attorney for More Information
Taxes are stressful for everyone, and a bankruptcy doesn’t make it any easier! If you’re about to file for bankruptcy and have questions about your tax return, call Steffens Law Office at (308) 872-8327 today! Our Nebraska bankruptcy attorneys will answer your questions and help get your finances back on track.