Bankruptcy Tuesdays

This month we’ve been discussing tax refunds and how that may impact your bankruptcy case. Generally, refunds due to you are assets of the bankruptcy estate, and may be claimed by the bankruptcy trustee. Last week we discussed an exception to that rule, where the tax refund is due to the earned income credit or the additional child tax credit. There’s one other important exception: when you already owe income taxes from a prior year. In that instance, the taxing authority won’t issue you a refund but will apply the money you would otherwise be entitled to against the taxes you owe. This benefits you two ways: (1) there won’t be any refund for the trustee to take; and (2) your obligation to the taxing authority (which is generally not dischargeable in bankruptcy) will be reduced by the amount of the refund. More to come on tax refunds next week from our bankruptcy attorney, Jim Wholly. Have a great Tuesday!