The answer depends on whether you file a Chapter 7 bankruptcy or a chapter 13 bankruptcy. In Chapter 7, as a general rule, if you receive an income tax refund that relates to a tax year that preceded the bankruptcy, you must turn the refund over to your creditors. So, if you file in 2020, and then receive a refund for the 2019 tax year, you will not be able to keep the refund. However, the timing of the bankruptcy filing is important. If you receive a refund after you file for bankruptcy, like in the preceding example, you cannot keep it. If, on the other hand, you receive the refund before you file for bankruptcy, an experienced bankruptcy attorney can advise you how to organize your finances to enable you to keep the refund.
In Chapter 13 bankruptcy, you can generally keep all income tax refunds that relate to a tax year that preceded the bankruptcy, regardless of whether you receive the refund before or after filing for bankruptcy. However, if you receive the refund after filing for bankruptcy, you may be required to pay the value of the refund to your creditors over the term of your Chapter 13 plan.
To sum up, if you are expecting to receive an income tax refund, it is generally advisable to wait until after you receive it before filing for bankruptcy. However, every situation is different, and there are both benefits and costs associated with delaying a bankruptcy filing. If you are considering bankruptcy, you should consult with a bankruptcy attorney in your area. If you reside in Tucson or Southern Arizona, you may contact a Mesa and Home at Yusufov Law Firm for a free consultation.