Wisdom regarding bankruptcy and tax refunds is: get it and get rid of it before filing bankruptcy. The bankruptcy trustee can’t take what you don’t have, correct?
In some cases the trustee can demand money that you no longer have in your possession. An example of this is a preference payment to your father for a car loan. The trustee can request that the money be turned over to the trustee.
The simplest way to avoid any potential loss of your income tax refund is to discuss the situation with us. In many cases we can exempt all or a portion of your tax refund, so you can keep the money after you file. The best guidance is to spend the money on goods and services that are reasonable and necessary.
The following are considered safe:
Household expenses such as utility bills, mortgage or rent payments, car payment, auto insurance and needed auto repairs.
Personal expenses such as food, clothing, dental work and medicine
Priority debts like child support arrears and tax debts.
Luxury good purchases like electronics, vacations and jewelry should be avoided. Likewise gifts to family and friends, shopping sprees and gambling should all be avoided.
