How To Use Your Tax Refund To File Chapter 7 Bankruptcy (Part 2)

On Behalf of Steele Law Firm PLLC | Feb 27, 2020 | Chapter 7

So you’re considering bankruptcy, but you also have a tax refund coming. Your refund probably isn’t enough to keep you afloat long-term. Still, you don’t want to jeopardize it. Chances are, if bankruptcy is on the table, you need every cent you can get.

In part one of this series, we explained the basics of bankruptcy exemptions – that is, property you get to keep in bankruptcy. Unfortunately, tax refunds aren’t among them. You might be able to keep your refund if you claim a wildcard exemption at the federal level, which allows you to hold onto any property up to a certain dollar limit. But that would require giving up the generous state-level exemptions, which in Texas are very friendly to debtors.

Using your refund to your advantage

Perhaps you were considering using your refund to knock down some debt. Don’t – at least, not before speaking with an attorney about your bankruptcy options. You might be able to get rid of your unsecured debt (credit card debt, medical bills and payday loans, for example) through bankruptcy.

Filing bankruptcy, however, does cost money. The filing fee is $335 (assuming you don’t qualify for a waiver). Attorney fees are more significant than that, depending on the complexity of your case. Yet those fees are well worth the expense. They’re a drop in the bucket when compared to the thousands or tens of thousands of dollars of debt that may get wiped away in bankruptcy.

So why not use your tax refund to cover those fees? You’d likely lose that money in bankruptcy otherwise. By applying it toward your bankruptcy costs, you can leverage it to get out of debt once and for all, turning it into a clean financial slate.

The bottom line

If you’re considering bankruptcy, speak to a lawyer as soon as possible. Even if it doesn’t make sense to file just yet, you can start to form a strategy for how to come out ahead – especially with regard to your tax refund.


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