I Just Spent A Large Tax Refund – Can I Still File for Bankruptcy?
Posted on Mar 21, 2011 in Bankruptcy, Bankruptcy and Taxes
This year’s April 18th deadline for filing taxes is almost here, and that means many of us have already filed our state and federal taxes and – hopefully – received a refund. Sometimes we will meet someone who had the good luck to get back $4,000, $6,000 or even $8,000 back from the IRS. But that money isn’t always enough to balance their finances, and they still need to file for bankruptcy. What to do about that spent refund when the trustee asks about it?
Our first piece of advice is always to keep track of where the money went. Usually there is a very simple answer for why that $6,000 refund is down to $500. $3,000 went to property taxes. $500 went to badly needed car repair. $1,000 was spent on fixing the leaky roof. And $1,000 went to catching up with the gas and electric bills. That sounds more reasonable than “It’s all gone”, because every dollar is accounted for. The second thing to remember is to hold off on paying back close friends and family members for loans. It sounds unfair to wait when the money is finally in front of you, but repaying family in large amounts (especially $500 or more) is considering making a “preference” to one creditor over all others. That money can be recovered from a trustee, so that $2,000 repayment goes back to your creditors instead of your parents.
Finally, waiting can be the best answer. Sometimes, waiting a few months is a good way of showing that your tax refund wasn’t enough to take care of all the medical bills, credit card debts and other bills. If you are expecting a large refund, or have already received one, call the attorneys at Lakelaw to discuss your financial options.