How Will Bankruptcy Affect My Taxes?

bankruptcy affects taxesFiling for bankruptcy is sometimes the best way to re-assert control over your life. If you have fallen on hard times, if you have lost your job or been forced to take on a large financial burden, it may not be possible to manage your existing debt. Filing for bankruptcy Mobile AL can give you the breathing space you need to build a more prosperous future.
If you have decided to declare a Chapter 7 or 13 bankruptcy, you should hire a bankruptcy attorney Mobile Alabama. One of the things that a bankruptcy attorney Selma can help you with is your taxes. Declaring bankruptcy will affect your tax filing. Some individuals who declare bankruptcy can protect their tax refund; others cannot. You should speak to a Mobile AL bankruptcy attorney to determine which category you fall into.
Assets and Bankruptcy
According to the laws governing Chapter 7 and 13 bankruptcy, a tax refund is an asset. No matter the time you receive the refund, if the money is in your bank account at the time of your filing, then it will be considered an asset. In fact, the court-appointed bankruptcy trustee will ask specifically about your tax refund. The state of Alabama does not have an exemption for tax refunds so it will count as one of the many monetary assets that are subject to seizure.
How to Protect Your Tax Refund
If you are filing a Chapter 7 bankruptcy, here are some ways to protect your refund:
You can file after you receive and spend your tax refund. This will ensure that you have the cash to stock up on needed supplies such as food, medicine, clothes, and other living expenses before you submit your paperwork.
You can use your tax refund to pay the fees and expenses of your bankruptcy attorney Robertsdale.
These are perfectly legal ways to get the most out of your tax refund. They are not considered attempts to avoid paying a creditor because you are allowed to use your assets to pay living expenses.
If you plan to file a Chapter 13 bankruptcy, you can use the tax refund for the expenses described above. Otherwise, you must go toward paying your creditors. Chapter 13 is different from Chapter 7. In the former, you will need to establish a three-to-five-year repayment plan. For this to work, you must pay the percentage of your total disposable income that you agreed to. This will include the money that comes into your bank account from your tax refund.
Some flexibility is possible. If an unforeseen event has diminished your ability to pay living expenses, the trustees may agree to allow you to use your tax refund for this purpose. You also have the option of adjusting your employment tax withholding to decrease your refund, which will give the trustees less to take.
Let Your Lawyer Help You Make Big Decisions
Filing for bankruptcy is a way to get a fresh start. While it is your right to use the law to maximize the amount of money you can hold on to, you must avoid causing even more trouble and upheaval in your life by breaking the rules. Having an attorney by your side can help you meet you survive financially while adhering to the letter of the law.
A lawyer is especially useful if you are filing Chapter 13 bankruptcy. At some point during your multi-year repayment schedule, you will need to use a large part of your disposable income for an unexpected living expense. Your lawyer can help you decide when this needs to happen. They will also help you make the case to the trustees. A bankruptcy attorney Mobile AL at the Loris Law Firm can provide you with the insight and representation you require.