Tax Refunds May Be Used to Pay Off Debts During Bankruptcy

This week, Americans all across the nation finished their taxes and sent them off for review by the Internal Revenue Service (IRS). While some individuals sent checks with their returns to satisfy their owed taxes, others learned that they would receive refunds of tax money they overpaid during the prior year. However, New Yorkers who filed for Chapter 7 bankruptcy may find that their anticipated refunds will never reach them because of their outstanding debts.

According to the IRS, individuals who are eligible to receive refunds for their taxes, but who have filed for Chapter 7 bankruptcy, may see several things happen with their refund checks. First, they could have their checks sent to them without any issues. Second, they could have their checks claimed by their bankruptcy trustees and used to pay down their claimed bankruptcy debts. Third, they could have their refund checks held by the IRS and ultimately delayed in their distribution to either their bankruptcy trustees or themselves.

New Yorkers who have chosen to pursue liquidation bankruptcy should know that many factors can influence if and when they will receive their anticipated tax refunds. Those who believe that they should receive refund checks, but who have not yet collected them may follow up directly with the IRS regarding the status of those payments or may discuss their concerns with their bankruptcy attorneys.

A tax refund may seem like a piece of financial salvation to someone going through the Chapter 7 bankruptcy process. Nonetheless, not everyone who is eligible to receive a refund will do so, if they have a pending bankruptcy action. Consultation with bankruptcy lawyers can help individuals understand their tax obligations during and after their bankruptcy matters are resolved.