Many individuals wonder if they will be able to keep their Federal and State Income Tax Refunds if they are planning on filing a Chapter 7 bankruptcy. The answer to this question depends on various circumstances including how much of a refund you expect to receive, what types of tax credits you receive on your income tax returns, how much property you own, how many dependents you have, and where you live.
When filing a Chapter 7 bankruptcy, there is a certain amount of exemptions you can receive to help you keep certain property. Exemptions are the laws set forth by the bankruptcy code that allow certain amounts of property to be protected through a bankruptcy. Exemptions are determined from state to state, meaning that different states have different exemptions that can be used. Exemptions also vary within a state, depending on if you are married or single, and depending on the amount of dependents you have. In Missouri, you get higher exemption amounts for every dependent you have that is under age 21 (*Until recently, the exemption only applied to dependents ages 18 and under; however, the courts recently decided that most children/young adults are fully dependent until the age of 21). For Missouri residents, you are allowed $1250+ $350 for any additional dependents 21 years old or under. In addition to this, you are allotted separate exemptions for household goods/furnishings, jewelry, and other various types of personal property. This is different than how the exemptions work inIllinois. InIllinois, you are allotted $4,000 of exemptions for any type of property.
So, how does this apply to your tax refund? Your tax refund is considered part of the bankruptcy estate. So, being able to determine how much of your refund you will be able to keep will depend on the amount of exemptions you have to use. InMissouri, you can use the head of household exemption and the wildcard exemption to help keep your tax refund. InIllinois, you can use part of your wildcard exemption to keep your refund.
There were also recently changes to the amount of a tax refund that debtors who receive certain tax credits can keep. Until recently, individuals who received Earned Income Credit tax credits on their tax refunds had to turn the unexempt portion over to their trustee. However, with the changes to the law, now the Earned Income tax credit is protected through a bankruptcy, meaning the trustee will not take that portion of the refund. This change is extremely beneficial to lower income families who depend on their tax refunds to make it through the year.
If you are interested in finding out how much of your tax refund you will be able to keep through your bankruptcy, contact a St. Louis Bankruptcy attorney today!