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Tax Refunds & Other Lump Sums

Chapter 7

Tax Refunds are part of your bankruptcy estate regardless of when your bankruptcy case was filed, but only apply to the next filed Income Tax Returns. Chapter 7 Trustees will want a copy of your Federal and State Income Tax Returns that are due after your bankruptcy case is filed. Please send me a copy of the returns upon filing. The Chapter 7 Trustee will have a prorated interest in the refund depending on when your bankruptcy case is filed. For example: If you file your case on the 200th day of the year, the Chapter 7 Trustee will have a 200/365 prorated interest in your tax refunds. If your refunds total $3,650.00, then the Chapter 7 Trustee could receive $2,000.00 of the refund, while you would be entitled to $1,650.00 of the refund. Depending on your case, you may have been able to exempt some, if not all, of the tax refund. The important thing to remember is that you should provide a complete copy of the Federal & State Tax Returns to me upon filing so that I can determine how to protect your interest in the refunds. You should not spend the tax refunds until the Chapter 7 Trustee has determined the bankruptcy estate’s interest, if any.

Chapter 13

Tax Refunds are part of your bankruptcy estate regardless of when your bankruptcy case was filed. If your combined Federal & State Income Tax Refunds are less than $1,000.00, you do not need to send me copy. If they are If more than this amount, please send me a complete copy of the returns so that I can determine what, if any of the refund, needs to be paid to the Chapter 13 Trustee. The important thing to remember is that you should provide a complete copy of the Federal & State Tax Returns to me upon filing so that I can determine how to protect your interest in the refunds. I need as much detail as possible when you send me the returns.

Other Lump Sums

Depending on when and why you are receiving a lump sum of money, it may or may not be part of the bankruptcy estate. If you become entitled to inherit money, property or life insurance proceeds within six (6) months of filing a Chapter 7 case, it is an asset of the bankruptcy estate. If you win the lottery the day after filing a Chapter 7 case, it is not part of the bankruptcy estate. If you are in a Chapter 13 case, you should always contact me regarding any lump sums to determine what impact it may have on your case.

 

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