Navigating bankruptcy and tax refunds in Ohio can feel overwhelming if you don’t know what to expect. Especially for those in tight financial situations, you most likely want to be able to keep your tax refund with Chapter 7 in Ohio.
Are you wondering if you can keep your tax refund when you file for Chapter 7 or Chapter 13 bankruptcy? If so, check out this article, where we will be discussing bankruptcy and tax refunds in Ohio and how bankruptcy exemptions may be able to help.
How Tax Refunds Are Handled in Chapter 7 Bankruptcy
If you want to keep your tax refund in Chapter 7 in Ohio, this can be a little difficult. This is because tax refunds will usually be categorized as a type of asset when it comes to Chapter 7 bankruptcy. Because of this, most tax refunds will be used to pay off creditors.
However, how tax refunds are treated in Chapter 7 bankruptcy can often be dependent on when you file. For instance, it is recommended to file early in the year, around June or July, so that you are more likely to be able to keep your tax refund.
Also, it is very likely that you will be able to keep tax refunds for any years after you have filed for bankruptcy, since these will not be considered as part of your bankruptcy estate or as an estate asset.
Of course, if you have any concerns, it is strongly recommended that you hire a bankruptcy attorney to look over your case. They will be able to help you better determine whether or not you can keep your tax refund, or if there are any ways around having it categorized as an asset.
How Tax Refunds Are Handled in Chapter 13 Bankruptcy
Similar to Chapter 7 bankruptcy, when you file for Chapter 13 bankruptcy, your tax refunds will usually go toward creditors as a way of eliminating your debt. However, there are always exceptions to this that could pose the possibility of you being able to keep your tax refund.
One option you have is to file a motion to retain your tax refund if you can show that it is financially necessary. Keep in mind that to do this, you need to have kept up on all of your payments. Also, filing a motion is usually something that only works once, as the trustee of your repayment plan will most likely oppose it if you file more than one motion during the lifespan of your repayment plan.
Another option you may qualify for is to be able to keep the greater of $3000 or the combined amount of additional child tax credits or your earned income credit. If you have anything that goes over the $3000 amount, it will usually have to go towards your repayment plan.
Ohio Bankruptcy Exemptions That May Protect Refunds
When it comes to bankruptcy and tax refunds in Ohio, there are many different options that could allow you to keep your tax refund. One option Ohio residents may be able to use when they file for bankruptcy are the bankruptcy exemptions, depending on the circumstance.
By far the most common exemption that could allow you to keep a portion of your tax refund is the wild card exemption that allows you to keep cash or property valued up to $1675. There is a personal property exemption as well which allows you to keep cash up to $550.
Tax refunds that are based on additional child tax credit or earned income credit may also provide additional exemptions.
Best Practices for Timing Bankruptcy Around Tax Season
When you are navigating bankruptcy and tax returns in Ohio, you need to understand the timing aspect of this. Any tax refunds you receive from the tax year before you file for bankruptcy will be considered to be part of your bankruptcy estate. This also applies to any unfiled tax returns that are due a refund.
On the other hand, any refunds you receive from the tax year after you have filed are not considered to be part of your bankruptcy estate. So, by filing earlier in the year before tax season, you may be able to avoid having to give up your refund since it won’t be part of your bankruptcy estate.
Additionally, you can take steps to lower your tax refund amount, as the lower it is, the less likely it will be seen as a valuable asset. You may also be able to spend your tax refund on necessary expenses before it can be collected and applied to your debt.
No matter what option you end up choosing, it is essential that you seek legal representation. A bankruptcy attorney in Ohio will understand the bankruptcy laws and can help you choose an option that is the best fit for your situation.
FAQ Section
Will I automatically lose my refund in Chapter 7?
Not necessarily. Although tax refunds may be taken when you file for Chapter 7, you may qualify for a bankruptcy exemption up to a certain amount. You may also be able to use your tax refund for necessary expenses before it is taken.
Can the trustee take my entire refund?
Possibly, this will depend on when you file for bankruptcy and the specific details of your bankruptcy case.
Will I need to turn over state and federal refunds?
Many individuals who file for bankruptcy will need to turn over their state and federal tax refunds so that they can go towards their debts. However, there are exceptions to this depending on your bankruptcy case, when you file, the type of tax return, and whether or not you qualify for any bankruptcy exemptions.
Hire a Bankruptcy Attorney in Ohio
If you are filing for bankruptcy in Ohio, you most likely want to be able to keep your tax refund. Richard P. Arthur, Attorney at Law, has extensive experience handling bankruptcy cases, helping Ohio residents choose the right bankruptcy option that aligns with their financial goals. To proceed with your bankruptcy case, contact us today at 937-254-3738 for a free consultation.