But if you’ve recently filed a Chapter 7 bankruptcy, hold your celebration.
That refund may not be yours.
You have a bankruptcy estate
When you file bankruptcy, all of your assets become a “bankruptcy estate”. The estate includes your real estate; tangible things like cars and household goods; bank accounts; and legal rights.
Those legal rights might include the right to file a lawsuit; your share of a class action suit; an interest in the estate of someone who has died; or your right to get back money you overpaid in taxes.
It’s not possession of the asset on the day your bankruptcy case that counts. It’s whether the facts that entitle you to money have taken place.
So the refund is part of the estate even if you don’t receive it for months after your bankruptcy case is filed.
Tax refunds for closed tax years
If the tax year has ended when you file a bankruptcy case, any refund that follows from filing the tax return is property of the bankruptcy estate.
You may be able to claim an exemption in the refund. An exemption removes the exempt asset from the estate and thus from the control of the bankruptcy trustee.
You get to keep your exempt assets. [Read more…]