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Learn How You Can File Bankruptcy and Keep Your Tax Refund

wynnatlaw — Tue, 26 Jan 2021 17:13:45 +0000

The tax season is upon us, and the tax deadline is coming up on April 15th, 2021. Many of us are looking forward to receiving a nice-sized income tax refund check. But, for people thinking about bankruptcy, there are many questions to consider.

What happens to your tax refund check if you plan to file for bankruptcy?
Can you lose your tax refund?
Should you wait to file your taxes?

In this article, Wynn at Law, LLC’s bankruptcy attorney Shannon Wynn explains how you can file for bankruptcy and keep your income tax refund.

Should I wait to file my income taxes if I am considering bankruptcy?

Are you contemplating filing for Chapter 7 or Chapter 13 bankruptcy this year? If so, you may be wondering about the best timing for your bankruptcy. One common consideration is if it is better to file bankruptcy before or after filing your income taxes.

Each individual’s situation is unique. A bankruptcy attorney can help you decide when is the best time for you to file.

Generally, Wynn at Law, LLC’s bankruptcy attorney, Shannon Wynn, recommends filing your bankruptcy petition after filing your income taxes. In most cases, this is the best scenario. If you file for bankruptcy before filing your 2020 income taxes, the bankruptcy trustee may request you file your 2020 taxes quickly after your bankruptcy filing. Filing your taxes prior to filing bankruptcy, will also help your bankruptcy attorney give you the best advice on any refunds you are entitled to receive from the state or federal government.

Your income tax refund and the bankruptcy estate

Your bankruptcy estate consists of all the assets you own when you file your Wisconsin bankruptcy case. Your income tax refund amount is included in your bankruptcy estate. That means the bankruptcy trustee may be able to use the refund to pay your creditors, whether you have already received the check or if you are still expecting the refund check.

It is possible to protect your income tax refund check from the trustee, but that will depend on the allowable amount you can exempt by law and is influenced by the other assets you need to exempt. It is essential to consult with a bankruptcy attorney to pre-plan your bankruptcy estate and exemptions.

Ways to keep Your income tax refund check when filing for bankruptcy

You can spend your tax refund prior to filing bankruptcy without getting into trouble with the bankruptcy trustee if you spend it the right way. This list includes living necessities, such as mortgage payments or rent, food, car repairs, and a few others. Ask a bankruptcy attorney what expenses qualify.

It is important to remember that some expenses and utilities can be paid, such as medical bills, but may not be a good idea to pay prior to filing bankruptcy. Once you file your bankruptcy, you may not be responsible for repaying those creditors. You must choose the best way to spend your tax refund, and it is wise to do so under the advice of a bankruptcy attorney.

A bankruptcy attorney can help protect your tax refund

The absolute best way to avoid losing your income tax refund is to talk to a bankruptcy attorney. It may be worthwhile to use your income tax refund to pay your bankruptcy attorney fees if you plan to file for bankruptcy. If you are hiring an attorney to help with your bankruptcy case, which you should, you need to pay your bankruptcy attorney before filing your bankruptcy case. With your tax refund, you can pay your bankruptcy attorney upfront in one lump sum and start your case faster. This is especially beneficial if you are having a hard time raising the money for the cost of filing bankruptcy.

Things to avoid doing with your tax refund when filing for bankruptcy

You must not spend the income tax refund money frivolously. Never purchase luxury items or spend the money on loan repayments to your family and friends. Doing so can cause the trustee to require the repayment of the money.

People can often spend their tax refund money before filing for bankruptcy. File your taxes, receive your check, spend the money, and then file your bankruptcy. However, it is vital to keep a record of exactly how the money was spent. The bankruptcy trustee has the right to ask you.

Can bankruptcy eliminate income tax debt?

It is possible to discharge some Federal and Wisconsin income tax debt by filing for bankruptcy. However, the debt must meet specific qualifications:

Federal or state income taxes only.
Tax returns must be filed on time – despite not paying the balance due.
The tax debt must be at least three years old. (If you are expecting to owe money for your 2020 income taxes, it will not be dischargeable because the debt is less than three years old.)
The IRS’s income tax debt must be assessed at least 240 days before you file or must not have been assessed at all (240- Day Rule).

Once your qualifying tax debt has been discharged through bankruptcy, you are no longer responsible for paying back the taxes and any penalties assessed on your tax debt.

Do I need to file my income taxes?

Yes. The bankruptcy trustee will require you to provide copies of (at least) the last 2 years of income taxes.

Contact Wynn at Law, LLC’s bankruptcy law office

If you are considering bankruptcy this year and have questions, please contact our bankruptcy attorney, Shannon Wynn. Wynn at Law, LLC offers free, in-depth bankruptcy consultations. Our bankruptcy attorney is here to listen, advise, and help during your financial difficulties. You can reach our bankruptcy attorney by phone at 262-725-0175 or by email via our website’s contact page. Wynn at Law, LLC has bankruptcy law offices conveniently located in Salem, Delavan, and Lake Geneva, Wisconsin.

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Medical bills a threat to financial independence

wynnatlaw — Thu, 06 Jul 2017 11:45:00 +0000

We are frequently seeing clients with ‘surprise’ medical bills when Wynn at Law,LLC counsels people through bankruptcy proceedings. Catastrophic medical bills are, unfortunately, one of the more common reasons for Chapter 7. Usually those clients didn’t have insurance coverage. The surprise medical bills to which this article refers are bills health insurance did not cover.

For example, you schedule an in-network procedure. You’re assured your insurance is covering the cost. But a few weeks later, an OUT-of-network bill arrives. The Jan. 2017 Journal of the American Medical Association (JAMA) pointed out the problem. “The average anesthesiologist, emergency physician, pathologist, and radiologist charge more than four times what Medicare pays for similar services, often leaving privately insured consumers stuck with surprise medical bills that are much higher than they anticipated.”

Wisconsin, by the way, is among the states with the highest out-of-network markups according to the study.

As a patient, you don’t get to select the specialists like the anesthesiologists – who charge six times what insurance customarily pays based on the Medicare rate. But you do get the specialist’s invoice once your insurer carves out how much it will pay. States and Congress will sort out how customers avoid surprise billings. Maybe the solution is in Healthcare Reform… might be in state laws capping out-of-network charges… either way, it doesn’t change the immediate danger it puts your financial independence in.

Wynn at Law, LLC works with clients to try to avoid a bankruptcy filing if they can. Sometimes, it’s as simple as talking with the insurance company and the out-of-network provider about the crushing surprise bill.

Our team here at Wynn at Law LLC hope you had an enjoyable and safe Independence Day, and we want you to know that we’re by your side if your financial independence is put in jeopardy.

*The content and material in this original post is for informational purposes only and does not constitute legal advice.

Photo by Sean Prior, used with permission.

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Don’t cash out your IRA to avoid bankruptcy

wynnatlaw — Thu, 06 Apr 2017 11:30:00 +0000

Bankruptcy filing – or the prospect of it – usually puts Wynn at Law LLCclients in full-out panic mode. One of the most alarming, last-ditch, hail-Mary ideas coming from this desperation is to cash out a retirement plan to avoid bankruptcy court. In some cases, people can ‘borrow’ against their company retirement plan, usually a 401(k). This is as dangerous as cashing out to cover the financial struggle.

Don’t. Touch. This. Money.

Retirement money is tax-exempt until you touch it. If you touch it too early, you’ll be subject to taxes and penalties. Here’s a primer on a few of those consequences:

· If you put the money in after paying taxes on it – like in a Roth IRA – you’ll pay tax on the earnings and a 10 percent penalty if the IRA is less than five years old and the owner is younger than age 59 ½.

· If you put the money in tax-free – like in a regular IRA or a 401(k) – the entire distribution is subject to income tax at your current rate, plus the 10 percent IRS penalty if the owner is younger than age 59 ½.

A tax specialist or accountant will give you clearer instruction on your particular situation’s consequences. Wynn at Law LLC is concerned about those immediate consequences, and the long-term ones. It’s your retirement income you’re putting in jeopardy. You’re mortgaging your entire future! If you leverage this nest egg to avoid bankruptcy filing today, you may have just kicked the can down the road, facing potential bankruptcy in your retirement years.

In almost every case, your qualified retirement plan is EXEMPT from your bankruptcy filing anyway. You get to keep the plan, your creditors don’t. But this goes back to a message from an earlier Wynn at Law LLC article on honesty: You have to disclose that your own a retirement account. It’s still going to be your retirement nest egg, they can’t touch it, but you can’t hide it.

*The content and material in this original post is for informational purposes only and does not constitute legal advice.

Photo by Barbara Reddoch, used with permission.

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Spot the five early warning signs for bankruptcy

wynnatlaw — Thu, 16 Mar 2017 16:41:00 +0000

Most of Wynn at Law, LLC‘s bankruptcy clients face sudden situations that have them considering filing Chapter 7 or Chapter 13 bankruptcy. I’m talking about things like massive medical bills or sudden job loss. Finances can be a difficult balancing act at other times as well, so I put together a quick list of warning signs.

1. Wage garnishments. These are a dead giveaway that something got out of hand at some point and a bankruptcy filing may be in the cards. However, before a wage garnishment can take place, the creditor has to take you to court to get the order. So, here is the real heads up…

2. Summonses. If a creditor wants a piece of you and has been unsuccessful with collections on its own or with the help of a collection agency, they take you to circuit court. The court is in the county in which you reside. Walworth County Circuit Court, for example, is in Elkhorn. The court sends out a summons when a creditor files against you.

3. Missed or late payments. When you lose track of paying bills by the due date, it’s probably time to use a calendar. If you’re regularly late or paying at or below the minimum payment, that’s a warning sign. It’s also a money drain. Late fees are a nuisance. When you start paying interest on late fees added to your account balance, the situation can spiral out of control quickly.

4. Maxed out cards. One reason we miss payments or pay below the minimum is because a credit limit can be a tempting way to extend your income. Buying groceries on the credit card is one example. Even if you’re a super couponer, paying for Pick ‘n Save on the Visa negates any incremental savings from the coupons.

5. No savings. When you’re not following the old adage that you pay yourself first by putting money into savings or investments (like your retirement plan), it’s a signal. It could flag an unhealthy relationship with money that could bring anyone to Wynn at Law, LLC. Not every saver can squirrel away enough to make it through an unexpected loss of income… but it provides cushion.

The pattern in these five warning signs is in reverse order. If you’re at warning sign #1 already, call us. If you’re at warning sign #5, there’s probably still a lot you can do before needing an experienced bankruptcy attorney.

*The content and material in this original post is for informational purposes only and does not constitute legal advice.

Photo by Igor Stevanovic, used with permission.

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