For consumers who opt to file for bankruptcy around tax time, the idea of losing a sorely needed tax refund check is a legitimate concern. Luckily, there are ways to prevent all or a portion of a tax return from being seized by a bankruptcy trustee to pay creditors.
Spend the Tax Return
If taxes are filed and received within 60 days of the bankruptcy filing, the court has the right to request that funds from the return be contributed to creditors. If, however, an individual spends the tax refund on household necessities, the bankruptcy court will disregard the full amount of the return. Household necessities include:
- Groceries
- Car repairs
- Household items
- Home maintenance costs
Individuals who use the money to pay creditors or attempt to give the money as a gift to any third party may quickly discover that the bankruptcy court has the right to demand that they be held responsible for recovering the lost funds and delivering the money to the bankruptcy trustee.