When you file a chapter 7 Bankrupty a trustee is appointed to your case. The trustee’s job is to look for non-exempt assets. One asset that is a major source of income for the trustee is your tax refund!
We encourage our clients that will receive a large tax refund to file for the refund before we file the Chapter 7 Bankruptcy. Once the refund is spent on legitimate household expenses we will then file the case. You cannot hide the refund, or give it to a friend or relative to hold for you. The trustee will want to see how the money was spent through receipts and bank statements.
The Earned Income Credit is not part of the tax refund that can be taken by the trustee. However if you received this money prior to filing the bankruptcy it is important that you do not commingle the money with your regular bank account but set up a separate savings account to show where the money went.
If you are thinking about filing a chapter 7 bankruptcy please call the Ocala office of Laurence A. Steel to receive your free consultation about bankruptcy.