Will I lose my tax refund if I file Chapter 7?
Under Chapter 7, you may lose the first tax refund that's due after discharge, or some of it, because it's a refund of money earned before discharge. If some of the refund is from income earned after filing for bankruptcy, you keep it.
Filing this form of bankruptcy discharges all eligible loans and other outstanding financial obligations and legally forgives them. It prevents creditors from attempting to collect on these discharged debts in the future and imposes severe penalties for any creditors who do so.
- Lie under oath about your financial or property assets.
- Keep property that must be used to discharge your debts.
- Miss payments to certain creditors in order to keep your home.
For some, there's just no escaping all of it. Certain debts will remain on your account when you file for Chapter 7 bankruptcy. You will still be responsible for alimony and child support. Tax liens, student loans, and personal injury debts caused by intoxicated drivers are still on the docket, as well.
If it changed shortly after your case was filed, wait for the creditors' meeting and let the trustee know during the meeting that your income has changed. Depending on how much it changed, they may say don't worry about it or request that you file updated forms.
Under Chapter 7, you may lose the first tax refund that's due after discharge, or some of it, because it's a refund of money earned before discharge. If some of the refund is from income earned after filing for bankruptcy, you keep it.
Chapter 7 of the bankruptcy code requires you to sell your personal assets, with some exceptions, to pay off debt collectors or secured creditors If you file for Chapter 7 bankruptcy you must still file and pay personal taxes. File Form 1040, just as you would each year for your individual tax return.
While achieving an 800 credit score following bankruptcy is possible, it will take time and hard work. Above all, it is important to pay your bills on time each month and keep your credit card balances low.
The bottom line
While your credit score will typically take a significant hit after a bankruptcy filing, with hard work, patience and discipline it is possible to fully recover and get back on your feet.
11 U.S.C. § 524(f). An individual receives a discharge for most of his or her debts in a chapter 7 bankruptcy case. A creditor may no longer initiate or continue any legal or other action against the debtor to collect a discharged debt. But not all of an individual's debts are discharged in chapter 7.
Why would a Chapter 7 be denied?
The court may deny a chapter 7 discharge for any of the reasons described in section 727(a) of the Bankruptcy Code, including failure to provide requested tax documents; failure to complete a course on personal financial management; transfer or concealment of property with intent to hinder, delay, or defraud creditors; ...
“Chapter 7 applications get denied more often than people think,” Derek Jacques, of The Mitten Law Firm, in Michigan, said. “In my experience, about 15% don't even get approved. From there, they can be dismissed before the process is completed for a lot of reasons.”
Because you can list up to $50,000 in personal property exemptions, most clients who file for Chapter 7 bankruptcy find that this amount covers all household goods and electronics they own, including cell phones.
They don't get mad when they get your bankruptcy filing and they don't cry when they get your bankruptcy filing. Instead, they process the bankruptcy notice along with the thousands of others they get each year without an ounce of emotion about it.
When an individual files for bankruptcy, they are typically responsible for paying the costs of the bankruptcy process. The cost of filing for bankruptcy can vary depending on several factors, including the type of bankruptcy, the complexity of the case, and the location of the bankruptcy court.
Again, there's no minimum or maximum amount of unsecured debt required to file Chapter 7 bankruptcy. In fact, your amount of debt doesn't affect your eligibility at all. You can file as long as you pass the means test. One thing that does matter is when you incurred your unsecured debt.
If you listed the IRS as a creditor in your bankruptcy, the IRS will receive electronic notice about your case from the U.S. Bankruptcy Courts within a day or two of the petition date.
Bottom line. Filing for bankruptcy should be a last resort, but it can help you reset your credit and free up cash for savings. Chapter 7 requires a means test but will eliminate most of your debt, a few exceptions like student loans aside, and you may see a rebound in your credit score in just a few years.
You should not spend any money or dispose of any assets you own when you file your Chapter 7 bankruptcy case. Without court approval, the Chapter 7 Trustee can force the recipient to return the money or property. However, the income you receive after filing your case is yours to use.
Income tax (with some restrictions) is the only kind of tax debt that can be discharged in a Chapter 7 bankruptcy filing. In Chapter 13 bankruptcy, you can't generally discharge your tax debts but instead you can repay them through the life of your Chapter 13 repayment plan.
What income is used for Chapter 7?
The Bankruptcy Means Test
To determine whether you meet the “income limit” to file for Chapter 7, your average income over the previous six months must be lower than your state's median. That's the first step in the means test, and often the only one those filing Chapter 7 bankruptcy have to take.
The Fresh Start Program was designed to help taxpayers stuck in debt to reduce the amount they owe, so they can get back on track with their tax payments and begin to plan for their financial future.
In addition, maxing out your credit cards before filing for bankruptcy could be considered fraudulent under the law. You shouldn't think of bankruptcy as an opportunity to spend money. Instead, consider it an opportunity to reset your finances and financial life.
If you have filed for Chapter 7 bankruptcy, once the bankruptcy court grants a discharge, all of the debts that were included in the bankruptcy will reflect that fact on your credit report. That means that your debt to income ratio will improve, improving your score in that regard.
It's best to purchase a new vehicle after your bankruptcy has been finalized, which can take four to six months to complete. Buying a car or acquiring other assets beforehand can be a sign of fraud. You may be able to purchase a vehicle during bankruptcy if you receive permission from the court.
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