Around this time every year I get asked, “Brad, I’m expecting a tax refund, can I keep my tax refund?”
The answer is yes (you can keep your tax refund in bankruptcy). And the reason why you can keep your tax refund is, what we do when we file a bankruptcy, we actually go through your prior tax returns and we can estimate what your tax return is going to be.
If the tax return is $6,000 we then can estimate that at $500 per month then we can offset that monthly income with expenditures that you have throughout the year anyhow. So that money is not available to creditors and that money stays where it belongs in your pocket.
There are certain situations where somebody is on a very tight budget in a Chapter 13 and to make the numbers work and show affordability for a home or an expensive car, in very narrow circumstances we do have the option to allocate tax refunds to the benefit of creditors. But that only happens in the event that the debtor themselves want to do that, but otherwise, the tax refund is fully protected.