Section 3: Tax Questions
Understand the implications of bankruptcy on your tax returns and refunds. We explain the relationship between bankruptcy and taxes, guide you on how to submit your tax returns during your case, and more.
What is the difference between a Tax return and a Tax Refund?
A tax return and a tax refund are two terms related to taxes that people often need clarification on. Here’s a simple explanation:
- Tax Return: You fill out and give this form to the government, usually once a year. It’s like a report card of your past year’s income, expenses, and other tax-related information. When you “file your taxes,” you fill out and send in your tax return.
- Tax Refund: This is Money the government gives back to you if you paid more in taxes than you owed. When you fill out your tax return, you calculate how much tax you owe based on your income. If the amount you’ve already paid through deductions from your paycheck (or other payments) is more than what you owe, the government will send you the extra Money. That’s your tax refund.
Remember, this is a general guide. If you’re a current client and have questions, try looking through these answers first; they’re made to answer frequent questions, but your specific situation may vary. If you still need help, call the office at the top of this page nearest you or email your paralegal directly. Our team is ready to help you; if needed, we can set up a meeting with your attorney. Always consult with your bankruptcy attorney for personalized advice.
How does Bankruptcy affect my tax returns and tax refunds? Do I have specific obligations or rules to follow with my tax returns and tax refunds while in Bankruptcy?
When you file for Bankruptcy, it can have an impact on your tax returns and tax refunds. Here’s a general overview:
- Filing Tax Returns: In Bankruptcy, you must continue filing your tax returns as standard. If you’re in a Chapter 13 bankruptcy, you may need to submit your tax returns to the bankruptcy trustee each year. You can do this by providing them to our office, and we will send them to you.
- Tax Refunds: If you receive a tax refund during your bankruptcy case, it might be considered part of your bankruptcy estate. This means the bankruptcy trustee may be able to take some or all of your refund to pay your creditors. The rules vary depending on your state’s laws, each Court’s rules, and the specifics of your bankruptcy case.
Chapter 7 Bankruptcy: In a Chapter 7 bankruptcy, your tax returns stay your responsibility. You must continue to file them as you usually would. However, any tax refunds you are owed when you file your case and possibly the tax refund for the following tax year may be considered part of your bankruptcy estate, which could be used to pay your creditors. This depends on when you receive the refund, the bankruptcy exemptions that apply in your case, and the policies of your Chapter 7 Trustee.
Chapter 13 Bankruptcy: In a Chapter 13 bankruptcy, you also continue to file your tax returns. However, your tax refunds may be considered part of your disposable income and must be contributed to your repayment plan. Your refunds could be used to pay your creditors throughout your repayment plan. You must understand what is required of you regarding your tax returns and tax refunds during your Chapter 13 case. If you are uncertain, make sure you ask your paralegal or attorney.
Remember, these are general rules and can vary based on your circumstances and local laws. Always consult your bankruptcy attorney or legal advisor to understand what to expect in your case.
If you’re a current client and have questions, try looking through these answers first; they’re made to answer frequent questions, but your specific situation may vary. If you still need help, call the office at the top of this page nearest you or email your paralegal directly. Our team is ready to help you; if needed, we can set up a meeting with your attorney. Always consult with your bankruptcy attorney for personalized advice.
When and how do I give my tax return to the office while I am in my case?
You can do it in several ways if you’re in a bankruptcy case and must submit your tax return. You can mail it, email it to your assigned paralegal, fax it to our office, or even drop it off at our office during regular business hours. Remember, you must provide us with a fully signed copy of your Federal and State tax returns for every tax year that comes due while in your case. Here’s how:
- Email: You can scan and email your tax returns to your assigned paralegal. Make sure to include your name and case number in the email.
- Mail: If you prefer the traditional way, you can mail your tax returns. Please put them in an envelope, write our office address, and drop them in a mailbox. Make sure to include your name and case number on the documents.
- Fax: If you can access a fax machine, you can fax your tax returns to our office. For debtors in the Shreveport/Monroe and Alexandria areas, our fax number is 318-868-8966; for debtors in the Lafayette/Lake Charles area, our fax number is 337-456-5465. Make sure to include a cover sheet with your name and case number.
- Drop-Off: If you’re near our office, you can drop off your tax returns directly to our office staff during regular business hours. If you are in Shreveport, we also have a secure drop box at our Shreveport office where you can leave your documents.
Remember, this is a general guide. If you’re a current client and have questions, try looking through these answers first; they’re made to answer frequent questions, but your specific situation may vary. If you still need help, call the office at the top of this page nearest you or email your paralegal directly. Our team is ready to help you; if needed, we can set up a meeting with your attorney. Always consult with your bankruptcy attorney for personalized advice.
How much of my tax refund do I get to keep?
Several factors affect the answer to this question. Below is a general answer to this question.
In a Chapter 7 bankruptcy: Your tax refund can be considered part of your bankruptcy estate, which means it can be used to pay your creditors. However, you may be able to keep some or all of your refund depending on the exemptions that apply in your state. Exemptions protect certain assets in Bankruptcy; if an exemption covers your tax refund, you can keep it. The determination of what you are allowed to keep is based on the facts of each case and can be different for many clients. Please ask your attorney or paralegal if you need to know what is required.
In a Chapter 13 bankruptcy: If your tax refund is determined to be additional disposable income, you may have to give a part of your tax refund money to the Chapter 13 Trustee for some portion of or for the duration of your case. Generally, you can keep all portions of your Earned Income Credit or Child Tax Credit refunds. The trustee then distributes this Money to your creditors. However, you can keep some or all of your tax refund if you show that you need it for necessary expenses. The determination of what you are allowed to keep is based on the facts of each case and can be different for many clients. Please ask your attorney or paralegal if you need to know what is required.
Remember, this is a general guide. If you are a current client and have questions, try looking through these answers first; they’re made to answer frequent questions, but your specific situation may vary. If you still need help, call the office at the top of this page nearest you or email your paralegal directly. Our team is ready to help you; if needed, we can set up a meeting with your attorney. Always consult with your bankruptcy attorney for personalized advice.
If I am required to turn over any part of my tax refund in Chapter 13, does that allow my case to pay off sooner or end early?
In a Chapter 13 bankruptcy case, the part of your tax refund you must turn over is generally considered part of your disposable income and used to repay your creditors. Therefore, if you must turn over any part of your tax refund, it doesn’t necessarily mean your case will pay off sooner or end earlier. Instead, this additional income is usually used to repay your creditors who were not paid in full. However, the specifics can vary based on circumstances, repayment plan details, local bankruptcy rules, and Court practices. Always consult with your bankruptcy attorney for personalized advice.
There is an exception to the general rule that turning over tax refunds does not allow your case to pay off sooner or end earlier. This exception applies when paying a 100% dividend to all unsecured creditors. In such a situation, any additional payments you make, including turning over tax refunds, can accelerate your bankruptcy case’s payoff and potentially allow it to end earlier than the initially scheduled term.
This is because, in a 100% plan, all your disposable income is already used to repay your creditors in full. Therefore, any extra money you bring into the plan, such as a tax refund, goes directly toward paying your debts faster. This can result in your bankruptcy case being completed sooner than expected.
It is important to note that this is a complex area of bankruptcy law, and the specifics can vary based on your circumstances and local laws. Therefore, it is always recommended to consult with a bankruptcy attorney to understand how these rules apply to your situation.
Remember, this is a general guide. If you are a current client and have questions, try looking through these answers first; they’re made to answer frequent questions, but your specific situation may vary. If you still need help, call the office at the top of this page nearest you or email your paralegal directly. Our team is ready to help you; if needed, we can set up a meeting with your attorney. Always consult with your bankruptcy attorney for personalized advice.
What do I need to do if I want to request to keep a larger part of tax refunds than what must be given to the Chapter 13 Trustee?
Suppose you need to keep a more significant part of your tax refund while in a Chapter 13 bankruptcy case; you must take a few steps. First, you should contact your attorney or paralegal at our firm. They can help you understand your options and guide you through the process.
You’ll need to provide a detailed explanation of why you need the additional funds. This could be due to unexpected expenses, changes in your income, or other financial hardships. Be prepared to supply documentation to support your claim. This could include bills, receipts, or other proof of your expenses.
Once you have all your information together, your attorney will prepare a motion requesting authorization for you to keep additional tax refunds that he can file with the bankruptcy court. This motion will ask the Court to allow you to keep more of your tax refund. The Court will then review your request. If the Court agrees with your reasoning, they may allow you to keep a more significant part of your tax refund. The timing of this request is critical. It is usually much less successful if you have already received and spent the tax refunds. Remember that the Court has already ruled on what must be done with those tax refunds, so if you are going to request otherwise, make sure you still have the funds on hand when you make the request.
Remember, this is a general guide. If you’re a current client and have questions, try looking through these answers first; they’re made to answer frequent questions, but your specific situation may vary. If you still need help, call the office at the top of this page nearest you or email your paralegal directly. Our team is ready to help you; if needed, we can set up a meeting with your attorney. Always consult with your bankruptcy attorney for personalized advice.
