Legal Question in Bankruptcy in Kentucky
Tax refund and bankruptcy
I am a single mom of 3 children and had to file bankruptcy, I have done everything I was asked to do by my trustee and received my discharge in the mail a few weeks ago and was told I could not spend my tax refund until my trustee gives me permission. Can she take all of it and what could happen if I use some before she tells me I can? Is this a crime that could result in jail time?
1 Answer from Attorneys
Re: Tax refund and bankruptcy
A tax refund can be an asset of the estate and therefore "belong to" the trustee. It is also something that can be exempt property, using Kentucky's wildcard exemption (or a similar exemption in another jurisdiction).
Trustees frequently seek to recover tax refunds around this time of year: for them, it is easy money. That is why I sometimes counsel clients to file their tax returns, get the refund, spend it on something appropriate (like making mortgage payments, buying food, etc.), and then file bankruptcy. That eliminates the potential issue.
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