The calendar has rolled over to 2025, and that means it’s tax season. Some people are anticipating tax refunds and are already looking forward to growing their savings or making a significant purchase. But if you’re dealing with overwhelming debt, your tax refund might just be one more payment to keep your creditors at bay for a little while longer.
You don’t have to do this year after year. For many South Carolinians, the solution is to get a financial reset through bankruptcy.
Is filing bankruptcy right for you?
Bankruptcy is a legal process designed to help people who are deep in debt and need a fresh start. There are two types of bankruptcy available to individuals:
- Chapter 7 bankruptcy, also known as “liquidation bankruptcy,” can get your debts discharged (eliminated) in a process that usually takes about four months.
- Chapter 13 bankruptcy, also called “reorganization bankruptcy,” consolidates your debts into a repayment plan with an affordable monthly payment. After three to five years of payments, whatever debt remains is discharged.
Which type of bankruptcy is right for you depends on your circumstances, including your income and assets, the type(s) of debt you have, your family size, and more. An experienced bankruptcy lawyer can explain which option is in your interest during a free consultation.
Can I keep my tax refund if I file for bankruptcy?
As with most legal questions, the answer is “it depends.” Whether you can keep your tax refund depends on the circumstances and the type of bankruptcy you file.
If you file for Chapter 7 bankruptcy while you have a tax refund due, the refund becomes part of the bankruptcy estate. That means the bankruptcy trustee can liquidate it and use it to pay your creditors. However, you may be able to use exemptions to protect your refund.
If you file for Chapter 13 bankruptcy, your tax refund is generally considered part of your disposable income, which is factored into your Chapter 13 repayment plan. However, it’s sometimes possible to get your tax refund excluded from the repayment plan if you can show you need it for a necessary expense.
In either type of bankruptcy, another option is to spend the refund on essential purchases before you file bankruptcy. Of course, this means you’ll have to wait to file bankruptcy until after you receive your tax refund. Moreover, you need to make sure that the purchase is truly essential; pre-paying rent or bills several months in advance, for example, may not count as an essential purchase, since you don’t need to pay for those things now.
Talk to an experienced bankruptcy attorney about a fresh start
If you’re falling behind on your bills, dealing with harassment from creditors and debt collectors, and seeing your balances creeping upward every month, use your tax refund as an opportunity to move forward, not just tread water.
Give us a call or contact us online to discuss your options with an experienced bankruptcy lawyer at Benjamin R. Matthews & Associates, LLC.
"Didn't know what to expect moving forward in the process, but the staff made the experience as comfortable as possible. They will answer any questions you may have concerning your case in a reasonable time frame. Kudos." — David K., ⭐⭐⭐⭐⭐