Exempting your tax return prior to or after filing bankruptcy is an eventual question that comes up. Young families and even some middle aged families typically look forward to the time of the year when it’s time to file your tax return. People often received Earned Income Credit or other exemptions because they did not enter enough exemptions on their state and federal w-4’s. Several people often enter 1 or 0 on their withholding and typically receive a tax refund. Several financial gurus will tell you to claim all your exemptions and receive more in your paycheck. Well, if your struggling you are probably more concerned with owing the government money than creditors. If we know anything, the government will get their money. If you want to invest you can always put the money into some type of investment account after receive a tax return. If you’re married and have kids the more you exempt the more you receive in your weekly Bi weekly pay checks. Here is where Bankruptcy planning comes to play. I am not talking about committing fraud. I am talking about making the bankruptcy process work the best for you and your family by following the law. This is from ensuring you adjust your exemptions prior to taking your post bankruptcy class before and before you ever talk to an attorney. Of course, this is if your local bankruptcy trustee is known for taking tax returns.
Why are tax returns even an issue in bankruptcy? Well, if you just finished filing bankruptcy and you typically receive a decent amount of money from over paying taxes you definitely don’t want to give it up to the bankruptcy trustee. Bankruptcy is supposed to provide you with a fresh start, right? Your goal is to keep the money you earned. However, depending on which state you are in the trustee is entitled to the money. If your filing bankruptcy in Michigan it is no different. Several low to middle income families receive 5-6 thousand dollars back after they file. In this case, all the taxes you pain in 2008 you would expect to receive back in 2009 when you file your taxes by April 15th. Of course, you have to wait until you receive your W-2 before you can even file. For the struggling family this can seem like forever. In Michigan when winter hits and the bills are the highest; receiving a hefty tax return can really help a family struggling with everyday bills from heating, water, electric to fixing vehicles which always seem to break down during the winter months.
How do you keep your tax return during or after bankruptcy?
This is a very tricky question because it really depends on the state and the trustee. However, your best bet to keep your tax return is to exempt your return when you file for bankruptcy. The next question is how do you exempt something if you don’t know exactly how much you are getting back Well, you have your attorney place “anticipated tax return” on your bankruptcy schedules. This type of exemption will most likely only work if you have plenty of room left on your exemptions. Several people filing use all their exemptions on exempting equity in their homes or other similar things and typically have no room left over to exempt their taxes. In addition, being below or near the median income for your state may influence the trustee’s final decision on whether he/she. The decision to take your tax return also depends on what chapter of bankruptcy you’re filing under. For example, if you are filing Chapter 7 no-asset you could exempt your tax return. Below is how it could look for a married couple. Again, here is where bankruptcy planning comes into play. Do you increase the number of withholdings or do exempt your tax return.
Schedule B
Anticipated 2008 Tax return $6,000
On Schedule C You would list:
Anticipated 2008 Tax Return”
(Husb)11 U.S.C. 522(d)(5) $3,000
(Wife)11 U.S.C 522(d)(5) $3,000
In the end this is the legal way to exempt your tax return when filing for bankruptcy, Whether in Michigan or other states.
