Now that we are in the midst of tax season, it is important to consider the timing of when to file bankruptcy. If you file your 2011 taxes and receive the refunds prior to filing a bankruptcy, you may keep your refunds (provided that the amount in your bank account on the date of filing is within the exemption limits). If, however, you file your bankruptcy before you have received the tax refunds, then you are limited to keeping the amount of the refund that is within the bankruptcy exemption limits. For example, in Nebraska a single individual is entitled to a $2,500 exemption that can be used to cover the value of bank account balances, miscellaneous property or tax refunds. A married couple is entitled to a $5,000 exemption.
Here is an example:
Let’s say a single individual files bankruptcy, and on the date of the bankruptcy filing that person is entitled to get a $3,000 tax refund, but has not received it yet. That person could exempt $2,500 of that refund under their exemption, but would have to turn over $500 to the Trustee. The alternative is for the individual to wait to file the bankruptcy until after they have received the tax refunds and have less than $2,500 of it left in their bank account.
Whatever you do, make sure you don’t pay family members more than $500 of the refund, because any payments to family members of over $500 within a year of filing bankruptcy would be considered a preference payment. Additionally, you would not want to pay ordinary creditors more than $500 within 90 days of filing bankruptcy, since this too would be a preference payment.
Here is an example:
Let’s say a single individual files bankruptcy, and on the date of the bankruptcy filing that person is entitled to get a $3,000 tax refund, but has not received it yet. That person could exempt $2,500 of that refund under their exemption, but would have to turn over $500 to the Trustee. The alternative is for the individual to wait to file the bankruptcy until after they have received the tax refunds and have less than $2,500 of it left in their bank account.
Whatever you do, make sure you don’t pay family members more than $500 of the refund, because any payments to family members of over $500 within a year of filing bankruptcy would be considered a preference payment. Additionally, you would not want to pay ordinary creditors more than $500 within 90 days of filing bankruptcy, since this too would be a preference payment.
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