Blog

Feb
07
Keeping Your Tax Refund When You’re Filing Bankruptcy in Chicago

Keeping Your Refund

It’s tax time! While this time of year can be stressful to most people, it can be especially hard for people planning on filing bankruptcy. One of the biggest fears – and biggest myths – about bankruptcy is that you will lose everything you have. That isn’t the case, although sometimes keeping your tax refund will require a bit of pre-bankrupcy asset protection planning.

Whether you have received it yet or not, your tax refund will be considered a part of your bankruptcy estate. With tax refunds, whether you can keep yours or not is determined by whether it is exempt from the bankruptcy estate. In Illinois, there are laws that cover what property is exempt, and protected from collection.

There is no set exemption protecting tax refunds for people filing Chapter 7 in Chicago, but the Illinois exemptions do have a wildcard. This covers everything from money in the bank, cash on hand, household goods to your refund. While the exemption is generally enough to protect most people’s possessions, many people opt to spend their tax refund before filing their bankruptcy case.

You can spend your tax refund before filing for bankruptcy as long as you are spending the money on reasonable and necessary living expenses. Some examples are:

Mortgage, rent, homeowner’s association dues
Car payment, gas and car maintenance
Food
Clothing
Utilities
Medical and dental expenses
Insurance
Home maintenance and repairs
Property taxes
Attorney’s fees
Many people are surprised to learn they can spend their tax refund on attorney’s fees, but it’s true. In fact, people often use their tax refunds to pay the balance owed on their attorney’s fees so they can get moving on a fresh start.

If you have questions about what you should spend your tax refund on, you should speak with your bankruptcy attorney. When you go to your 341 hearing, the bankruptcy trustee will ask you how you spent your tax refund and often will want verification that you have receipts proving how you spent it.

To avoid the trustee taking issue with how you spent your tax refund, avoid the following:

Buying luxury items such as new televisions or jewelry
Repaying any friends and family members
Depositing your refund into anybody else’s bank account for safe keeping
With the guidance of an experienced Chicago bankruptcy attorney, you can use your tax refund to your best advantage and still proceed with your bankruptcy. If you a considering bankruptcy, you should speak with a Northbrook bankruptcy lawyer who can review your options with you to help you chart your course for your future.


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In order to provide convenience for clients throughout Chicago and Northern Illinois, we have offices in the following locations: 

Chicago • Schaumburg  • Oakbrook • St. Charles • Naperville • And More

Locations

We have office locations throughout the Chicago Area:

Chicago (Downtown)

Schaumburg

Oak Brook

Naperville


All calls are routed through our Downtown office for your convenience.

Phone: 312-967-3159

Locations

We have office locations throughout the Chicago Area:

Chicago (Downtown)

Schaumburg

Oak Brook

Naperville


All calls are routed through our Downtown office for your convenience.

Phone: 312-967-3159

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