For many taxpayers in the US, the tax refund represents a lifeline that only comes along once a year—often acting as a personal bail-out from debt that accrued over the past year, as well as typical overspending from the holidays. The average tax refund varies according to your number of dependents, but like many others you may actually have the maximum with-held from your pay all year, acting as an effective way to save (although many financial experts recommend not doing this as you are depriving yourself of your own cash flow during the year while allowing the government to spend it instead) so that you create your own windfall for the late winter or early spring.
Recent news and data explain that the average refund for a household in the US is around that of six week’s pay and may be ‘crucial to a family’s stability.’
“For about 30 percent of families, this ends up being the single largest cashflow infusion of the year,” said Fiona Grieg, director of consumer research for the JP Morgan Chase Institute, who worked on the study. “This is really a moment that resets their spending levels . . . it does play a key role in creating a savings buffer that families rely on for the better part of a year.”
What if you are considering filing for Chapter 7 bankruptcy though? The refund is not a cash asset that you want to lose, but in some cases that is possible if proper pre-planning measures are not in place. Timing may be very important in terms of your tax refund and your bankruptcy, which is why it is critical to consult with an experienced bankruptcy attorney. If you are planning on spending your refund before you file, one option may be to use such funds to pay essential bills and regular monthly payments like your mortgage, utilities, home repairs, car payments, and other debts like food and clothing.
You may also be able to claim your tax refund as exempt. The key is to disclose everything to the bankruptcy trustee and proceed accordingly so your discharge is never in jeopardy. Avoid spending your tax refund on large-ticket items like jewelry, advance payments on essential bills like your mortgage, as well as repaying creditors preferentially—or making payments on typical unsecured debt like credit cards. If your tax refund might not be exempt, filing a Chapter 13 case may be a better option for you.
You probably have many questions about bankruptcy, including which type of bankruptcy will work best for you, how much you will have to sacrifice (very little in many cases), and whether you will have to go to court. Speak with a skilled bankruptcy attorney from the offices of H. Lehman Franklin, P.C. Call now to learn more at 912-764-9616, or contact us online.