Bankruptcy is a challenging process for anyone and can make things very complicated when it comes to clearing debts and paying taxes. Filing for bankruptcy does not necessarily mean that your taxes or tax debts will be discharged.

Filing for bankruptcy means that you no longer have control over your own affairs, and a trustee is appointed to oversee them. Depending on the type of bankruptcy filing, you may receive a discharge on your overdue debts or a tax refund that will belong to your estate.

Tax Refund and Bankruptcy

There are a few things to remember if you are filing for bankruptcy and want to keep your tax refund. Under Chapters 7 and 11 bankruptcy, if you get a tax refund after filing for bankruptcy, the tax refund will not be a part of your estate. That refund will most probably be used by the trustee to pay off your debts.

Most people file for Chapter 7 bankruptcy because it eliminates most of their tax debts, but you may lose your first tax refund.

However, if you get a tax refund prior to filing bankruptcy, it will be a part of your estate, but as soon as you file for bankruptcy after receiving the tax refund, the money will be used by the trustee to pay the creditors.

Taxes are often considered non-dischargeable, but after filing for bankruptcy, the priority shifts towards paying other important debts, e.g., child support. Tax payments can be discharged under some conditions, e.g., the debt should be at least three years old, you should not have a history of tax evasion, the IRS should not have a lien over your property, etc.

Filing bankruptcy under chapter 13 allows you to keep your tax refund and devise a repayment plan with your trustee. The repayment plan can include or exclude the tax refund amount according to your monthly income.

During the provision of a bankruptcy case, you cannot accrue any new debts that you are unable to pay. Doing that leads to the court dismissing your current bankruptcy. There should be no prior cases of fraudulent refunds that can cause complications in your case.

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