Brandon, FL (Law Firm Newswire) March 20, 2013 - An estate in bankruptcy means any tax refund will likely become the property of the bankruptcy trustee.
Many Floridians are looking forward to receiving an income tax refund from the federal government in the coming weeks and months. Some will use it to catch up on their bills, and others will perhaps treat themselves to something special. But anyone considering filing for bankruptcy in Florida should carefully consider what to do with their tax refund.
Brandon bankruptcy attorney O. Reginald Osenton warned, “A pending tax refund for a person in bankruptcy becomes the property of the bankruptcy trustee, like most assets.”
Individuals expecting a tax refund and planning to declare bankruptcy may want to wait to file until after they have received and spent their refund. But they should take care to spend the refund only on basic living expenses, such as rent, mortgage payments, utilities, gasoline, and car repairs. Extra payments on a car loan may be inadvisable because only a certain amount of vehicle equity is exempt from creditors.
It is also permissible to put that tax refund toward bankruptcy filing fees or attorney expenses.
“Do not use your tax refund to buy luxury goods or convert the money into exempt property, such as an IRA,” added Mr. Osenton. “The bankruptcy court may deem this a fraudulent transfer.”
Using a tax refund to repay a personal loan may also be problematic. The rules governing how creditors are to be repaid in the event of bankruptcy are quite specific. A bankruptcy court may void a payment to a family member or friend, forcing them to hand the money over to the bankruptcy trustee so that it may be distributed among other creditors.
“It is far too easy for people in bankruptcy to do seemingly sensible actions that end up causing problems,” said Mr. Osenton. “It is important to seek the advice of an experienced bankruptcy attorney sooner rather than later in the process. Every financial step taken can make bankruptcy easier or harder.”
Osenton Law Office, PA
500 Lithia Pinecrest Road
Brandon, Florida 33511
Call: (813) 654-5777
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