Most people think that filing bankruptcy around this time of year, or the beginning of next year/tax season means losing your tax refund, or that filing bankruptcy will affect your taxes. That is a large misunderstanding!
To file a bankruptcy case, in general, all of your tax returns must be filed, for any year that you made enough income or were required to file. If you are behind on filing taxes, you must go back and file all previously missed years in order to be eligible for a bankruptcy case.
Regardless of which state you file a bankruptcy case in, your taxes are filed as normal. You must file the returns on time, and we will need the new tax returns if you have filed them already by the time you come into our office.
In Kentucky, your tax refund generally will not be taken by filing bankruptcy. It must be listed as part of your property, but the federal bankruptcy exemptions used in Kentucky usually cover the received refund. In certain bankruptcies, some of your tax refund may be required to be paid to the court, depending on how much you get and what you do with it.
In Ohio, you may keep up to a certain amount of your refund. As of 2021, you can keep up to $3,000 of a tax refund, or the amount that is from earned income credit or child tax credit, whichever is greater. Also, any stimulus payments that come as a part of your tax refund will not be affected by filing a bankruptcy case.
In either state, if you are planning to pay off big bills, or pay back family members with a tax refund, I would think twice and consult a bankruptcy attorney! There are some rules in bankruptcy where those payments made right before you file could be reversed and affect the people you paid back!
*Of course, every case is different and things may or may not apply depending on your situation.*
Call our office for more information and ask how this might or might not affect your future bankruptcy filing! The office number is 859-581-5516! Your tax returns and refunds should not keep you from filing a bankruptcy case with us!