Typically, people around the country use tax time as an opportunity to file bankruptcy. In many cases, a tax refund can be used to pay for the bankruptcy.
This year, however, due to new tax rules, many people who were planning to use their refunds to pay for a bankruptcy find that their refund is smaller than usual or even nonexistent. Worse, in some cases, they are learning they actually owe money, sometimes huge amounts.
As for those who are indeed still receiving refunds, they often do not realize how their refund might be lost in a bankruptcy without careful bankruptcy planning. People who do have a vague understanding that their tax refund is at risk in a bankruptcy can sometimes unnecessarily decide entirely against filing for bankruptcy.
There is good news, however. Bankruptcy attorneys regularly counsel people on how to plan financially for a bankruptcy.
That planning often includes how to pay for the bankruptcy while also protecting any potential tax refund. Where large tax debts have been incurred, those debts often cannot be eliminated, but they can indeed be managed through an effective bankruptcy strategy.
In fact, when it comes to paying for a bankruptcy, some attorneys will use a Chapter 13 bankruptcy rule that allows you to pay for your bankruptcy as part of your bankruptcy plan with the court. That same Chapter 13 bankruptcy can allow you to stretch out payments on large tax debts, even in some cases allowing you to eliminate the tax debt itself, particularly if the tax debt is older and meets other specific rules.
In other cases, a bankruptcy attorney can help you determine how to time your bankruptcy properly to maximize your rights under bankruptcy. That timing can change your case entirely when it comes to protecting refunds and to finding funds to pay for the bankruptcy itself.