Could I Lose My Tax Refund if I File Bankruptcy in New York City?
Could I Lose My Tax Refund if I File Bankruptcy in New York City?
People considering bankruptcy relief in New York City often wonder what will happen to their tax refund if they decide to file, and we hear this question a lot around this time every year. The short answer is no. Most tax returns can be kept when filing bankruptcy. There are ways to keep a tax refund out of the bankruptcy estate, but every situation is different, and in order to keep a tax return there may be some other give and take. Your bankruptcy attorney will factor the amount of your tax return into your overall financial situation to see if keeping the return is in your best interests. The worst thing a consumer can do is delay bankruptcy while they wait on a tax return. If you are underwater on your bills or already having your wages garnished the tax return you are expecting will only be a small Band-Aid compared to the financial cure all bankruptcy can provide. The end goal of bankruptcy is to put you in the best possible financial position moving forward and to give you a fresh start by eliminating your debts. If keeping your tax return is in line with this goal then your attorney will help you keep it.
What a debtor may or may not keep in bankruptcy all comes down to the available exemptions the US Bankruptcy Code and New York State Bankruptcy laws provide. Both the federal government and New York State have an itemized list of things that can be kept when filing bankruptcy. Exemptions help you protect your home, car, personal belongs, retirement benefits, cash assets and more. The federal and state exemptions vary, and a debtor must choose between one set of exemptions or the other. They may not combine exemptions from the two. The set of exemptions you choose to use will depend on your particular debt situation as well as the assets you need to protect through bankruptcy.
From here things start to get a little bit trickier. If you own a home and need to save it through the bankruptcy process choosing the New York State exemptions would probably be in your best interest as there is a very generous homestead exemption of $150,000 in New York City. However, if you use the New York homestead exemption you will not be able to exempt any of your cash assets including your tax refund. By using the federal scheme on the other hand you can exempt up to $12,725 in cash assets as a wild card exemption if you are not using the federal homestead exemption. This could include a tax refund and any other cash on hand.
Protecting tax refunds in a New York City bankruptcy is a particularly technical area of bankruptcy law. Keeping the return needs to be weighed against the overall debt picture, but don’t delay seeking the advice you need by waiting on a tax return. Speaking to an attorney doesn’t mean you will lose your refund. If you live in New York City contact the Law Offices of William Waldner online or at 212.244.2882 to arrange a free bankruptcy consultation today. We only practice bankruptcy law and maintain a 99% Chapter 7 bankruptcy discharge record in New York City as of 8/31/16.
**** DISCLAIMER: This article is intended for educational purposes only. By reading no attorney-client relationship has been created. Prior results do not guarantee a similar result for future clients.