Navigating bankruptcy and your tax refund in New York can come with some challenges if you don’t know what to expect. There are certain rules for both taxes and bankruptcy that you need to be aware of so that you don’t run into any issues along the way.
At Grady BK, PLLC, our goal is to provide our New York clients with the legal guidance and representation they need as they navigate filing for bankruptcy and taxes. We understand how overwhelming this can feel, which is why we strive to provide clarity and peace of mind. In this article, we will be discussing bankruptcy and tax refunds in New York and whether or not you can keep your tax refund.
Are Tax Refunds Considered Assets in Bankruptcy?
Different states will handle tax refunds differently when you file for bankruptcy. When it comes to New York, a bankruptcy trustee may take your tax refund when you have filed for bankruptcy and use your refund to pay a portion of your debts. However, whether or not a tax refund is taken will be dependent on what exemptions you take, how much your tax refund is, and what time of year you file the bankruptcy.
So, it is always best to get the help of a bankruptcy attorney in New York if you are filing for bankruptcy but want to keep your tax refund. An attorney will be able to help you better understand what your options are, especially if you are deciding on the type of bankruptcy to file for.
How Tax Refunds Are Treated in Chapter 7
Chapter 7 is a type of bankruptcy that many people choose as long as they meet the income requirement. The entire process is relatively short, allowing you to start fresh without losing everything that you own.
When you file for Chapter 7 you make a list of everything that you own and the law gives you exemptions that protect your assets. A tax refund is an asset that would be listed. Depending on what exemptions you take will determine whether or not your tax refund is protected.
How Tax Refunds Are Treated in Chapter 13
Chapter 13 bankruptcy is another very common bankruptcy option that New York residents can take advantage of. However, this option is quite different from Chapter 7 bankruptcy as it creates a repayment plan so that you can reapay a percent of your debts. The repayment plan usually lasts anywhere between 3 to 5 years, allowing you to pay back a percent of your debts while taking your living expenses into account.
If your income is too high for Chapter 7, you would most likely have to file for Chapter 13.
Navigating tax refunds when you file for Chapter 13 is a bit tricky since it can go either way. Usually, you will have to turn over your tax refund, if it is over a certain amount, to the bankruptcy trustee, as it will be considered part of your disposable income. But whether or not this is the case will depend on your specific Chapter 13 repayment plan and how much you are paying your creditors.
Strategies to Protect Your Tax Refund
Can you keep your tax refund during bankruptcy? This is a common question New York residents have, as you most likely want to take advantage of any disposable income you have available. The good news is that there are some strategies you can use to protect your tax refund when you plan on filing for bankruptcy.
For example, if you are filing for Chapter 7 bankruptcy, you can spend your tax refund before you start the filing process. To do this, you must use your tax refund towards essential expenses, such as:
- Rent
- Mortgage payments
- Car repairs or maintenance
- Home maintenance
- Medical expenses
- Grocery bills
- Utilities
- Educational expenses
- Insurance
If you file for Chapter 13, you can file a Chapter 13 plan modification requesting that you are able to keep your tax refund. To do this, you need to include the amount of the refund, how much you would like to keep, and why you need that money.
You may also be able to use your bankruptcy exemptions in NY to protect your tax refund. There are certain exemptions for cash, as well as a wild card exemption that you may be able to use to keep your tax refund.
It is always best to consult with a bankruptcy attorney to determine the best strategy for protecting your tax refund. Keep in mind that this needs to be done legally; otherwise, you could run into issues later on.
FAQ:
Can I keep my tax refund if I file Chapter 7 in New York?
This will depend on whether or not you qualify for any bankruptcy exemptions, if you are able to spend your tax refund before you file, and if the refund is for income earned before you filed.
Can I use my tax refund to pay for bankruptcy fees?
Yes, as long as it’s before you have filed. You can also use whatever is left of your refund to pay for necessary living expenses so that it isn’t seized once you have filed for bankruptcy.
New York’s Top Compassionate Bankruptcy Attorney
If you have filed for bankruptcy and you are getting your tax refund in New York, you are probably wondering what comes next. At Grady BK, PLLC, we help our clients navigate the many aspects of bankruptcy that apply to their situation. We will work with you one-on-one so that you can proceed with confidence and a better understanding of how life after bankruptcy will look.
At Grady BK, PLLC, we can help you navigate tax refunds, whether you are filing for Chapter 7 or Chapter 13 bankruptcy. We will also be available throughout this process in case you have any questions or concerns.
Contact us today at 315-299-9005 to discuss your financial situation with a New York bankruptcy attorney. Our team at Grady BK, PLLC, is here to assist you with all of your bankruptcy concerns and needs.
