Any prospective bankruptcy debtor who is expected to be eligible to file a Chapter 7 bankruptcy case who expects to receive a tax refund must consider the timing of filing his or her bankruptcy case.
It is crucial for any consumer considering bankruptcy to know that having unfiled tax returns may cause substantial delays for bankruptcy debtors in any type of bankruptcy case, under any chapter, whether 7, 11, or 13. For Chapter 7 debtors, failing to file tax returns may cause them to lose a tax refund or have their case dismissed.
Under 11 USC § 521(e), a debtor has until seven (7) days before the meeting of creditors, also known as a § 341 meeting, to provide the Chapter 7 Trustee with a copy of the debtor’s most recent tax return. A debtor may be required to file copies of tax returns that are past due with the court, and even those in the future for some defined time.
At the precise moment that debtors file a bankruptcy case, most of their assets become the property of their bankruptcy estate, which includes any unpaid tax refunds owed as of the petition date of the bankruptcy case. Unless the tax refund is exempt, a Chapter 7 bankruptcy trustee may legally seize the tax refund and distribute it to creditors.
If there is potentially no exemption available for a tax refund, which is the case in Utah, the optimal alternative is to delay the filing of the bankruptcy case until the tax refund is received and used for food or other expenditures on assets that would be exempt in a bankruptcy case. For example, the tax refund should not be spent on a boat or ATV, something that the trustee would liquidate in a bankruptcy case because it would be non-exempt property like the tax refund. Of course, this option is only viable if there is no present necessity to file a bankruptcy case immediately.
One of the Morrison Law Group’s qualified and knowledgeable bankruptcy attorneys can answer any bankruptcy debtor’s questions about any relevant bankruptcy law. The Morrison Law Group can also help if you just want to talk about Chapter 7 or Chapter 13 bankruptcy options. Call 801.456.9933 today to schedule a FREE consultation. We have locations in Ogden, Logan, Sandy, and St. George to serve the residents of the counties of Weber, Cache, Salt Lake, Utah, Morgan, Davis, Washington, and surrounding areas.
