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Can I Keep My Tax Refund if I File a Chapter 7 Bankruptcy?

If you are contemplating about filing for a bankruptcy, you probably have a lot of questions regarding the aftermath. At the top of the list will probably be questions about your tax refund.

Before you file, it’s important you understand that it could affect your refund. In this article, you will learn how chapter 7 could affect your tax refund and also what measures you can take to protect it.

Tax Refund and Chapter 7 Bankruptcy

When you file for Chapter 7 bankruptcy, a court-appointed trustee who is a representative of your creditors will collect your assets and liquidate them. The proceeds are used to pay your creditors.

All your assets will be transferred to the bankruptcy estate when you file chapter 7. This includes both tangible assets like your house and car, and intangible assets such as tax refund that is owed to you, but not yet paid.

If you have filed at a time when a tax refund is due, the trustee can claim it or a portion of it along with other assets. Even if your tax return is to be prepared a few months after filing, it will be claimed by the trustee if the refund is owed to you.

The fact that you didn’t know that a tax refund was due does not mean that a refund is not due.

How to Prevent Your Tax Refund from Being Transferred to a Trustee?

Proper timing is important if you want to protect your tax refund. You can prevent your refund from being collected by the trustee if you receive and spend the refund BEFORE you file a Chapter 7 as long asyou spend the money for necessities and you do not pay back money you owe to relatives, and also you do not pay back any creditor more than than the usual payment.  Be prepared to tell the trustee how you spent the money at the 341 creditor’s meeting.

However, you should consult with a bankruptcy attorney before using this strategy to protect your refund. You can easily spend the refund in ways that may seem sensible but can raise red flags upon close evaluation.

Another way you can protect your tax refund after filing for bankruptcy protection is through exemptions. Congress and state laws have established exemptions. The federal or state exemptions can be claimed by filing Schedule C: The Property You Claim as Exempt (individuals).

You can use cash-on-hand exemption ($475..00) or wildcard exemptions ($1,250.000) for protecting your tax refund, However, you can use the exemptions only if they have not been used to exempt other assets. Also, you should note that to claim exemptions in a particular state, you must have lived in the state for about two years prior to filing for bankruptcy.

Moreover, earned income credit (EIC) and child tax credit (CTC) are exempted from the bankruptcy estate without the need to claim them. EIC is a benefit for individuals with low to moderate income. On the other hand, CTC provides a credit of up to $1,000 per child under the age of 17.

You should consult with an experienced  Cleveland bankruptcy lawyer to know more options about protecting your tax refund when filing a chapter 7 bankruptcy.

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Attorney Eli Tamkin is a Cleveland bankruptcy lawyer.  He has been practicing law since 1989 and in Cleveland Ohio since 1994. Since then, he has dealt with a variety of legal issues, including bankruptcy, real estate, divorce, personal injury, and probate. Many times, answering questions on bankruptcy draws on knowledge of other legal areas as well. His experience as an attorney in these other areas, as well as in bankruptcy enables him to address your particular needs and to offer you advice that is applicable to

Can Taxes be Discharged in Bankruptcy?

It is a general misconception that taxes can’t be discharged in bankruptcy. While you cannot eliminate all taxes, there is a possibility of discharging some.

In this article, you will know the cases when you are allowed to reduce your tax liability in bankruptcy.

Taxes in Bankruptcy: What You Should Know?

Bankruptcy can provide you relief from the tax debt. How much relief you can get depends on different factors. Some of the factors that determine which taxes can be eliminated include the following.

  • Age of taxes — The tax amount due that you wish to discharge must be due at least 3 years before you file for bankruptcy.
  • Assessment of taxes — The IRS must have assessed your income tax due at least 240 days before filing for bankruptcy.
  • Type of taxes involved — Only income and sales taxes can be discharged in bankruptcy. You cannot discharge other types such as payroll or property taxes when you file for bankruptcy.
  • Timely submission of taxes —The tax return for the amount due must have been filed at least 2 years prior to filing a bankruptcy petition.
  • Apart from the above rules, you should also note that bankruptcy won’t help if a person has tried to evade taxes using a fake social security number or other fraudulent manner in the past. However, this exception applies only to willful evasion of taxes. If a person has made an honest mistake in entering the wrong information, the tax liability can be discharged through bankruptcy.

Another important thing you should note is that you can’t eliminate tax lien on your property when you file for bankruptcy. You need to pay the tax lien if you want to sell your property. However, the IRS sometimes agrees to lift the lien. You can request the IRS to lift the lien by filing tax Form 12277.

 

Final Remarks about Taxes in Bankruptcy

Taxes in bankruptcy is a complex topic. Make sure that you have all tax records before filing. The court will ask you to submit a copy of the most recent tax return.

Getting the help of a bankruptcy lawyer will help you navigate through these complex laws

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Attorney Eli Tamkin is a Cleveland bankruptcy lawyer.  He has been practicing law since 1989 and in Cleveland Ohio since 1994. Since then, he has dealt with a variety of legal issues, including bankruptcy, real estate, divorce, personal injury, and probate. Many times, answering questions on bankruptcy draws on knowledge of other legal areas as well. His experience in these other areas, as well as in bankruptcy enables him to address your particular needs and to offer you advice that is applicable to

What Happens to All my Debts on My Credit Report after I File a Chapter 7 Bankruptcy?

A Chapter 7 bankruptcy is a viable option when you’re overwhelmed with financial difficulties. It releases you from personal liabilities for most debts, depending on your financial situation. However, before you file, you should know about the aftermath.

One important question that you need to consider when filing a Chapter 7 is what happens to your debts on your credit report. Knowing the answer to this question will ensure that you don’t face unexpected financial problems after filing.

Debts on Credit Card Report After Chapter 7 Bankruptcy

After you file a Chapter 7 bankruptcy, there is a Stay imposed by the Court whereby creditors are prohibited from engaging in any more collection activities.  About 3 months after you file, or about 2 months after the 341 creditors meeting, the Court will issue an order, discharging you of you debts.

But discharge of a debt after a Chapter 7 does not erase your financial history.

All your debts will still show on your credit report. However, the report will also show that your debts are discharged and you have zero debt.

But why are your debts shown in the credit card report? Shouldn’t the debts be wiped out from the credit report once they are discharged?

To understand why credit card report shows discharged debts, you should know the purpose of the report.

Information in the credit report is used by credit agencies to assess your credit worthiness. In order to help credit agencies to properly assess your risk, the credit reporting agencies don’t wipe out debts that are discharged in bankruptcy.  The debts will remain in the credit report for 10 years after filing for bankruptcy protection.

How Will Bankruptcy Status Affect Your Credit Score?

A  bankruptcy can have a negative effect on your credit score;  However, it is possible to Repair your credit score over time. The most effective way to restore your credit score is for a creditor to report to the credit bureau that you paid a bill. . You should consider paying your bills as early as possible as this will have a major impact on your credit score.

In conclusion, a bankruptcy will have a negative impact on your credit score. But the negative consequence will wear off with time, and you will be able to rebuild your credit. For more information on how debts will affect your credit history after filing a Chapter 7, you should contact an experienced Cleveland bankruptcy attorney.

A bankruptcy lawyer will help you not only discharge debts quickly, but also provide guidance on how to improve your credit score. You can get information on how to discharge both secured and unsecured debts by filing a Chapter 7.  Moreover, he will assist you in removing false status reported in your credit report. This is a time-consuming and extremely difficult process that can only be solved with the help of an attorney.

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Attorney Eli Tamkin is a Cleveland bankruptcy lawyer.  He has been practicing law since 1989 and in Cleveland Ohio since 1994. Since then, he has dealt with a variety of legal issues, including bankruptcy, real estate, divorce, personal injury, and probate. Many times, answering questions on bankruptcy draws on knowledge of other legal areas as well. His experience in these other areas, as well as in bankruptcy enables him to address your particular needs and to offer you advice that is applicable to

Can I Rehabilitate My Credit Report after Bankruptcy, and How?

Yes, you can rehabilitate your credit report after bankruptcy. Even though the bankruptcy details remain on your credit report for as much as ten years, you can immediately begin to improve your score after filing for bankruptcy. This is quite important considering the fact that credit companies, including car finances and mortgagors, will examine your credit report. Credit reporting companies generally look at your outstanding debt, your payment history, your length of credit history, and also how much new credit you are seeking; all of these are put together to determine your credit score.

 
The American economy in a sense is paradoxical: While one goes into bankruptcy because he or she has defaulted in paying off debts, one of the fastest means of rehabilitating your credit report is to spend even more and establish a better credit history. It is believed that your power to spend more after bankruptcy translates into increase earning power to show you are more credit worthy and responsible.

 
But before applying for new credit cards, try to purchase within your means, paying off your bills in full at the end of every month; the essential thing is to improve your repayment habit. Paying off debts in full when they are due, and making sure your debt is as low as possible when compared to your available credit, will enhance your ability to earn more, and that will put you in a better light when it’s time to borrow money. In other words, always try to spend within your means before you borrow more money. Adopting this approach when you assume more debt will help to rehabilitate credit report as you will make your payments in full and on time; and eventually, if this process is continued and improved upon, your credit report will become much better.

 
Talk to a professional bankruptcy attorney or credit counsel to properly guide you in your quest to rehabilitate and improve on your credit rating. Going into bankruptcy is not an end in itself, but an opportunity to make a fresh start, and will need to make wise financial short and long term decisions.

 
Summary
The blog explains that it is possible to rehabilitate and improve on the credit report. It also highlights the steps necessary to be taken to achieve this over time.

 

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Attorney Eli Tamkin is a Cleveland bankruptcy lawyer.  He has been practicing law since 1989 and in Cleveland Ohio since 1994. Since then, he has dealt with a variety of legal issues, including bankruptcy, real estate, divorce, personal injury, and probate. Many times, answering questions on bankruptcy draws on knowledge of other legal areas as well. His experience in these other areas, as well as in bankruptcy enables him to address your particular needs and to offer you advice that is applicable to your situation.

Can the Trustee Take My Tax Refund?

Possibly, the trustee can take your tax refund according to the rules in Chapter 7 bankruptcy. This depends on whether the tax refund is protected under the Bankruptcy law by what are called “exemptions.” The trustee is like the lawyer for the creditors you who own the debt you are trying to discharge in your bankruptcy. His job, as their lawyer, is to try to get as much money from your assets so that he can to pay off the debts you are discharging; however, the law protects most of your non-luxurious assets in what are called “exemptions.” Exemptions are like pockets of money that the law allows you to keep, and which the trustee cannot take. These exemptions include $450.00 for cash, $1,225.00 for a wild card that can be applied across the board to any asset of you choice, child credits exemption and earned income exemptions. You can “stack” or add exemptions together to pay any single debt. Your attorney will try to protect your tax refund under one or more of these exemptions so you can keep as much of your refund as possible.

 

However, if your refund is above what is protected by these exemptions, the trustee may still be able to take the difference. To protect your tax refund from being collected by the trustee, wait to file until you collect it before filing for bankruptcy. In other words, once bankruptcy is filed, tax refunds automatically become liable for collection by the trustee for settling of your debts. Tax refunds which are from the prior year are included in the total property owned by you and are considered part of the assets to be used to service the debts. However, as stated above, you may be able to protect you refund or a large portion based on these exemptions.
There are different ways a trustee can attach a refund. In some cases, the refund is sent directly to you, and you will be expected to hand over the check to the trustee when you receive it. In other cases, the trustee notifies the Internal Revenue Service of your bankruptcy condition to intercept your tax refund; so, when it’s time to receive the tax refund, it goes directly into the trustee.
The best way to go about protecting your tax refund from being taken by the trustee is to talk to a Bankruptcy attorney before you file for Bankruptcy.
Summary
The blog explains that the trustee is authorized to take your tax refund unless it can be protected under exemption. Exemptions are like pockets of assets that the law allows you to keep which are protected from the trustee and from your creditors. It also advices you in such to seek the help of an attorney to better understand the whole process before you file a bankruptcy.

 

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Attorney Eli Tamkin is a Cleveland bankruptcy lawyer.  He has been practicing law since 1989 and in Cleveland Ohio since 1994. Since then, he has dealt with a variety of legal issues, including bankruptcy, real estate, divorce, personal injury, and probate. Many times, answering questions on bankruptcy draws on knowledge of other legal areas as well. His experience in these other areas, as well as in bankruptcy enables him to address your particular needs and to offer you advice that is applicable to your situation.

Can I Mediate My Foreclosure Case if a Sheriff Sale Has Already Been Set?

Yes.  The Court may approve your request to mediate even though a sheriff sale has been set.  While the mediation will not stop the sale, that sale will not be approved or “confirmed” by the Court.  The Court will first wait to see what the outcome is of the mediation; ie., whether a deal can be worked out with the bank.

Nevertheless, you should still check the court’s docket periodically because at times the court can make a mistake and still confirm the sale. This has happened to me on occasion and I have had to file motions to vacate the sale in emergency hearings.

Summary

While mediation will stop the foreclosure process, it will not stop a sheriff sale; that sale goes forward as scheduled, but the court will generally not confirm the sale and will wait to see the outcome of the mediation.

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Attorney Eli Tamkin is a Cleveland bankruptcy lawyer.  He has been practicing law since 1989 and in Cleveland Ohio since 1994. Since then, he has dealt with a variety of legal issues, including bankruptcy, real estate, divorce, personal injury, and probate. Many times, answering questions on bankruptcy draws on knowledge of other legal areas as well. His experience in these other areas, as well as in bankruptcy enables him to address your particular needs and to offer you advice that is applicable to your situation.

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