A lot of folks rely on their tax return to help alleviate financial stress. It doesn’t matter if you need money to clear out some bills, repay your debts, or meet some ordinary expenditures. Any kind of loss related to your tax return is significant. Those considering filing for bankruptcy in Indiana might have questions about their refund after the filing process. 

Your tax refund may be part of the bankruptcy estate

When you file for bankruptcy, a specific legal entity called the bankruptcy estate is formed. It includes all your assets and financial claims at the time you declare bankruptcy, including your tax refund. 

Even if you have not yet received your tax refund, the amount you earned before declaring bankruptcy can be considered part of your assets in the bankruptcy estate. For instance, if you filed for bankruptcy halfway through the tax year, some of your refund would be part of the bankruptcy estate. 

This means that timing becomes very critical when it comes to a refund.

Bankruptcy exemptions may protect your refund

Fortunately for you, Indiana offers exemptions that can help you protect your tax refund. An exemption is an exception to a law that allows property to belong to you despite being part of the bankruptcy estate. 

Whether you have an exemption and how much of the refund can be protected depends on your financial situation and any other property you may own. In some instances, the refund is fully exempt, while in others, the bankruptcy trustee might try to seize the nonexempt portion. Whether you want to protect the refund will depend on your unique circumstances. 

Timing can impact the outcome

When you decide to file for bankruptcy can have a profound impact on your case. Some folks will file after they receive their tax refund, so the money can be applied to necessary expenditures. However, filing for bankruptcy before receiving your tax refund can be helpful for some people, provided their assets are fully protected by exemptions.

It’s worth mentioning, however, that spending your tax refund on unnecessary purchases or giving the money to relatives and friends before filing for bankruptcy can lead to legal issues, as bankruptcy courts will scrutinize your financial activity directly prior to filing for bankruptcy.

You should consult a bankruptcy lawyer before doing anything else.

Every bankruptcy case is different

Your tax refund is part of a bigger puzzle. Whether you decide to declare Chapter 7 or Chapter 13 depends on your assets, Indiana’s exemption laws, and other factors. This, in turn, will determine how your tax refund is handled. 

It is wise to seek the services of an experienced bankruptcy lawyer who can guide you in handling your anticipated refund. 

Talk to a Danville, IN, Bankruptcy Lawyer Today

Chris Arringing represents the interests of those who are too far in debt to pay their way out. Call our office today to schedule an appointment, and we can begin preparing your filing right away.