Cana tax refund be taken in a Chapter 7?

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Cana tax refund be taken in a Chapter 7?

Due to filing bankruptcy and having our home foreclosed on (hasn’t happened yet but is inevitable by late this year or early next year), can our tax refund be taken? Should we change how we file?

Asked on August 21, 2010 under Bankruptcy Law, Michigan

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

You need to consult with a bankruptcy attorney. I believe that a great deal will depend upon the exact timing of the filing for bankruptcy vs. filing your taxes and become eligible for the refund. As a general rule, all assets of a debtor are considered as part of the bankrupcy estate, for purposes of repaying creditors, with the exception of a few, specifically exempt, assets. (I don't believe that tax refunds are specifically exempt.)

Money owed as a certainty to a debtor can be an asset--it's basically an "account receivable." However, just because you think you should be eligible for a tax refund doesn't in fact mean that you are, or that it is an asset of yours; it becomes an asset at some point subsequent to filing, when it becomes definite that you'll receive it. Therefore, alot will turn on the exact circumstances and timing of tax filing (and refund) vs. bankruptcy filing. If you had already  received the refund, of course, then yes--it would be an asset of the estate and subject to liquidation.


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