Many Consumers Wait for Tax Refund to File Bankruptcy

Waiting for Tax Refund to File Bankruptcy

New research conducted by economists at the University of Chicago, Columbia University and Washington University in St. Louis reveal many consumers wait to file bankruptcy until they receive their tax refund check.  The study also showed the total number of bankruptcies increased in 2008 after debtors received their refunds.

Data released from the study showed many debtors were unable to afford the cost of filing and needed to use their refund for this purpose.  A tax refund is considered an asset that should be reported to your bankruptcy trustee.    In many cases, you may be able to keep your refund through exemptions set in your state but it depends on circumstances associated with your filing.

While debtors are often worried about what will happen to their refund when filing bankruptcy, many bankruptcy attorneys may advise to delay filing until you receive and spend it.  This could be the case if your refund amount exceeds the exemptions allowed.  Keep in mind, how you use your refund before you file bankruptcy could have an effect on how your case is resolved.

If you choose to make a payment to a certain creditor just before filing it may be considered what’s called a preference payment.  Sometimes these payments can be viewed differently by the court that could make your case more challenging.  It’s common for debtors to use their refunds to get caught up on necessities such as utilities, rent and even set aside funds for bankruptcy fees.  But it may be best to review your situation with your bankruptcy attorney before receiving your refund.