If you are expecting to receive a tax refund, you will want to consult with a bankruptcy lawyer before you file for Chapter 7 bankruptcy. The size of the refund and timing of tax filing should be considered prior to any bankruptcy filing.
In Arizona, a tax refund in a Chapter 7 bankruptcy filing is considered an asset that is being held by another party but owed to you. The tax refund is part of the bankruptcy estate just as if it is a savings account or investment account, and it needs to be listed among your assets.
If you receive a tax refund prior to filing for bankruptcy, the money should be spent on reasonable and necessary expenses such as food and housing. It is also acceptable to use the refund to pay for the bankruptcy costs. If you purchase an asset with the refund, that asset could be available to the trustee for debt repayment depending on the type of asset and available exemptions.
To ensure the best outcome when filing for Chapter 7 bankruptcy, advise your bankruptcy attorneys of an anticipated tax refund or recently received tax refund. The attorneys at The Frutkin Law Firm, PLC in Phoenix, Arizona, have decades of experience in determining the best course of action for your individual circumstance.
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