Be aware that if you file Chapter 7 bankruptcy in Oklahoma before you receive your 2013 income tax refund, your Chapter 7 bankruptcy trustee can take your tax refund away from you when you receive it.
Oklahoma exemption laws allow a person filing Chapter 7 bankruptcy to protect only that portion of a tax refund that is due to the earned income credit. Any part of an income tax refund not due to the earned income credit is subject to be taken in the bankruptcy process.
In my experience, the Chapter 7 trustee generally will not take an income tax refund unless it is at least $1,000.00. So if you are expecting a combined state and federal income tax refund of less than $1,000.00, while the trustee could take it, generally he or she won’t.
TIP: Here’s where pre-bankruptcy planning becomes very important. If you expect an income tax refund of $1,000.00 or more, you should consider delaying the filing of your Chapter 7 bankruptcy case until after you have received your income tax refund and spent it on reasonable expenditures. If you just put the refund in your bank account, the trustee can still take it.
Reasonable expenditures would be things like your rent or mortgage payment, utilities, car payments, groceries, clothing, house repairs, car repairs, and even your bankruptcy attorney and filing fees.
However, you should not use your income tax refund to pay back existing debts to friends or relatives. And you shouldn’t use it to buy luxury goods, take a vacation, or gamble.
Since pre-bankruptcy planning can be tricky in order to do it in a way that complies with the bankruptcy law, it is always best to seek the advice of a knowledgeable, experienced bankruptcy attorney.
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