Tag Archive for: bankruptcy exemptions

How Does Bankruptcy Affect Tax Refunds?

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How Does Bankruptcy Affect Tax Refunds?

Tax refunds are protected in bankruptcy by the bankruptcy exemptions available to all debtors. Your tax refund is an asset, and must be declared as an asset on your bankruptcy case filing. By applying the bankruptcy exemptions to the refund, you can keep the refund.

Bankruptcy Exemptions To Protect Tax Refunds

The Bankruptcy Code provides for debtors to retain property even when filing a bankruptcy. It is for this reason that you can typically keep your home in bankruptcy or keep your car in bankruptcy. The allowances which dictate how much value in an asset is protected in bankruptcy are called Exemptions. Tax refunds are a general asset, and as such, you can protect them by using N.C.G.S. Sec. 1C-1601(a)(2). This is commonly referred to as the “Wild Card” exemption. It allows you to protect up to $5,000 of any asset, including your tax refunds. The exemption applies to each debtor. For a married couple filing bankruptcy, you would have $10,000 available under the Wild Card exemption.

Refunds Received Before Filing Bankruptcy

If you receive your tax refund before you file bankruptcy, you may still need to protect it by using an exemption. It is perfectly fine to spend your tax refund before you file bankruptcy. You may decide to use it to pay for bankruptcy, pay for some home repairs, buy new car tires, or pay for normal living expenses. These expenditures are perfectly allowable in bankruptcy and will not negatively affect your bankruptcy filing. If you have funds remaining from your tax refund when you file bankruptcy, you will use the Wild Card exemption to protect those remaining funds.

Tax Refunds In Chapter 13

If you are filing a Chapter 13 bankruptcy, you will need to disclose your tax refunds each year that you are in the Chapter 13. If your tax refunds are the result of an earned income credit or child tax credit, they are exempt in bankruptcy and you can keep them. Generally, you can also keep the first $1,000 of a tax refund each year. If your tax refund exceeds $1,000, your Charlotte bankruptcy attorney will disclose the refund to the Chapter 13 trustee. This is a good time to also tell the trustee if you have household expenses which you have been putting off. You can propose to keep your tax refund to take care of those household expenses, provided they are not luxurious.

If you are considering filing bankruptcy, it’s important that you speak with a Charlotte bankruptcy attorney. The call is free and you will come away with a much better understanding of your options. You can reach us at 704.749.7747 or click to request a FREE CASE EVALUATION, and we will be in touch shortly.

Further Reading

If this article addressing “How Does Bankruptcy Affect Tax Refunds?” was helpful, you may find other helpful articles on our Bankruptcy Blog. Thank you for visiting the website—we hope it has been helpful.

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Bonus In Bankruptcy – Can I Keep It?

Can I Keep My Bonus In Bankruptcy?

If you are paid a commission or bonus through your employer, a key question when filing bankruptcy is whether you can keep your bonus when you file a bankruptcy. If certain factors are met, the answer is yes, you can keep your bonus in bankruptcy. Our firm litigated a case in the Western District of North Carolina in 2017 which addressed that exact issue. You can find a link to the story about the case published here on Bloomberg Law.

Is My Bonus Part Of The Bankruptcy Estate?

Whether a bonus is part of the bankruptcy estate, and potentially at risk of being paid over to the Trustee, depends. If the bonus has already been received and is sitting in your account, then yes, it will need to be addressed as an asset of the estate. If the bonus is earned, but not yet received, the answer is the same. However, if a bonus is earned but the payment of the bonus and the amount of the bonus remain in the discretion of the employer, your bonus may not be an asset of the bankruptcy estate.

The Timing Of Your Bonus Is Important

The snapshot for determining the answer to numerous questions regarding your bonus is the day of filing. If on the day of filing, your employer still retains discretion as to whether to pay the bonus, then you have no vested rights in the bonus. For the purpose of bankruptcy, this is merely an expectation of a bonus. Case law supports the conclusion that a mere expectancy or hope of a bonus is not an asset. Therefore, the bonus would not be part of the bankruptcy estate. While your employer may in fact end up paying the bonus, if at the time of filing you had no legal right to it, then it should not be included in the bankruptcy estate.

What Would Change This Answer?

If prior to the day of filing, your employer communicated to you that you have earned a bonus and the bonus will in fact be paid at a later date, this would most likely dictate the bonus is an asset of the estate. If the bonus was small enough, you could use one of your bankruptcy exemptions to protect the bonus. Depending upon whether you could prove when the bonus was earned, you may also be able to protect some or all of the bonus under the earned income exemption.

How Is A Bonus Different From A Commission?

In this context, the imagined bonus is one that is at the employer’s discretion. A commission is typically calculated and generated upon a mathematical equation, and upon a certain event—conclusion of a sale, signing of a contract, etc. Presumably, the same questions would arise concerning a commission. If the commission was earned at the time of filing your bankruptcy, it would be an asset of the bankruptcy estate, whether you had been paid the commission yet or not.

Speak With A Charlotte Bankruptcy Attorney

If you are considering filing bankruptcy, speak with a Charlotte bankruptcy attorney today. You can call us at 704.749.7747 or click HERE to request a call. We know you have choices. We hope you choose to Recover With Us.

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