Many Americans actually look forward to filing their taxes every year because they are eligible for a “tax refund” from the U.S. government. Georgians who are lucky enough to receive these refunds typically use this extra money to pay bills, add to a savings or retirement account, or even splurge on a night out with a loved one or a vacation.
However, for Georgians who are contemplating filing for bankruptcy in order to alleviate their debt burden (or how have already done so), there might not be any extra money for the aforementioned splurges and payments. Bankruptcy law treats a tax refund as an asset for bankruptcy purposes and therefore the amount of the refund must be listed on Schedule B of the bankruptcy application along with the applicant’s other assets.
The reason why the law treats a tax refund like an asset is because the law takes the position that the refund is basically the same as cash – even if the bankruptcy applicant hasn’t yet received the refund check from the government yet. Once the applicant receives the refund check, the applicant has some decisions to make. If the applicant has not yet filed bankruptcy, the applicant could potentially spend the refund on necessities such as food and clothing. But the applicant should definitely not spend the refund on luxury goods (such as a brand new car or expensive jewelry) as doing do could be deemed an act of bad faith that could adversely affect the applicant’s bankruptcy application. (Before spending any amount of the refund, applicants are highly encouraged to speak to an attorney to make sure the spending would not be construed as an act of bad faith).
If the applicant has already filed bankruptcy and then receives the refund check, it is a different story. Now, it may be possible for an applicant to keep the refund notwithstanding the requirement to disclose it on the Schedule B. There are a number of exemptions that Georgians may take advantage of in order to keep the refund even when filing for bankruptcy.
Because navigating these exemptions and deciding which exemptions to take (and for what) can be very confusing, Georgians who are considering filing for bankruptcy – or who have already filed but now have a tax refund – are highly encouraged to consult skilled bankruptcy attorneys to help them through this process. Contact our office today to speak to one of our attorneys about your case and learn how the Georgian bankruptcy exemptions can help you keep your tax refund and emerge from bankruptcy debt-free!