This is the time of year when Debtors like to use their tax refunds to file a Chapter 7 Bankruptcy.  It is also the time of the year that your Bankruptcy attorney should inform you that if you file Bankruptcy before receiving your Tax Refund you could lose your Tax Refund or part of it. 

Every case is different, however, the advice I give my clients is if they are filing a Chapter 7 bankruptcy and they are going to receive a Tax Refund to wait until they receive the tax refund. The next question is, what should they do with that money?  Typically, I advise clients to spend their tax refunds on living expenses, medical bills, or legal fees.

The age-old question is what shouldn’t I spend my tax refund on? it is important not to spend that money on luxury goods, repay loans to friends or family, and even paying down one unsecured creditor and not another can create problems for the debtor.  The debtor can also run into trouble paying one secured creditor multiple payments upfront. 

Well, is any part of my Tax refund exempt? Such as Child Earned Income Credit? If so, how do I keep that money exempt?  These are good questions for your Bankruptcy Attorney. 

Sherry Ellis
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