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Will the court take my tax return if I file bankruptcy? What is Chapter 7 Bankruptcy? - Liberty Law

Chapter 7 Bankruptcy, also known as “fresh start” bankruptcy, allows your debts to be discharged (or canceled).  In exchange, you may be required to give some non-exempt property to the bankruptcy Trustee to pay your creditors.  Your tax return and earned income credits are non-exempt property.  If you do not spend your tax refund before filing bankruptcy, the Trustee can take the refund to pay your creditors. The Trustee generally will not take exempt items such as bedding, clothing, trade tools and some vehicles.

Before filing for bankruptcy, you can take steps to protect your property.

You can use your tax refund to buy things that are exempt:  food, some furniture (such as bedding) and clothing.  You cannot give the tax refund money to friends or relatives, not even to “hold” for you until the bankruptcy is finished.  You cannot use the refund to make payments to a favored creditor within 90 days before filing bankruptcy,but you can make regular monthly payments on cars, homes, phones, and utilities.

Getting Help Does filing bankruptcy makes sense in your circumstances?  Contact us for a free consultation: 801-709-6309.