When you file your Chapter 7 Bankruptcy case in Colorado, a “snapshot” is essentially taken at that very moment and everything you own becomes property of the bankruptcy estate. This means everything . . . including any tax returns that are owed to you. For example, when you file Chapter 7 Bankruptcy on September 30th, you are actually owed 75% of the next year’s tax return because you are 75% of the way through the year. So, if you filed on September 30th, your bankruptcy trustee can keep your case open and you could be required to turn over 75% of next year’s tax return. The further into the year your filing date is, the more likely your bankruptcy trustee is going to want to look at taking that tax return. Why? Because the percentage of your tax return the trustee is entitled to keeps getting higher as the days and months pass by.
It is important to note that the percentage the trustee can demand from you does not include any part of your tax return that is pursuant to “Earned Income Credit” and “Additional Child Tax Credit.” These two credits given to some taxpayers can be found on lines 64a and 65 respectively on the IRS’s 1040 form. In other words, if you actually qualify and receive them, these two, particular amounts are excluded from the assets available for the trustee.
A Chapter 13 Bankruptcy filed in Colorado is a different matter altogether. A well-planned Chapter 13 filing will allow you to keep all your tax return (keeping your assets is one of the reasons someone files a Chapter 13 Bankruptcy). Timing can be everything when it comes to Chapter 13 so you should not wait to look into the possibilities. There are usually more important issues to address in a Chapter 13 case than just keeping your tax return but it is something to keep in mind in analyzing the case.
In the end, there are only so many ways to try to avoid losing your tax return. The strategy is obviously different for each person and the details must be reviewed in every case. Wagner Law Office, P.C. will set forth a specific procedure for you to follow that will maximize your benefits and ultimately reduce your “damages” as far as your tax returns go.