How To File Bankruptcy During Tax Season
This blog will tell you
1) how to start the easy process of filing bankruptcy, and
2) how to PREPARE for filing bankruptcy during tax season.
1. How to start the process of filing bankruptcy:
Filing bankruptcy is much easier than most people anticipate. The first step is to have me (Bankruptcy Attorney Lucas Ruffing) answer any questions you have about the process. We can do this in about 20-30 minutes during a FREE phone consultation. THAT IS IT! During that short call, I will tell you all the details of your case, and let you know the short list of documents required to file!
2. How to PREPARE for filing bankruptcy during tax season:
It’s important to know what portion of your tax refund is protected from the bankruptcy.
Tax Refunds Protected by Ohio Law
Ohio law ORC Section 2329.66(A)(9)(g) allows bankruptcy filers to keep tax refund money owed to them under the Earned Income Credit (EIC), and the Additional Child Tax Credit (ACTC).
$8,000 total tax refund
$5,600 is Earned Income credit
$2,000 is Additional Child Tax Credit
Ohio law allows you to keep in a bankruptcy:
KEEP! $5,600 because of ORC 2329.66(A)(9)(g)
KEEP! $2,000 because of ORC 2329.66(A)(9)(g)
KEEP! $400 because of ORC 2329.66(A)(3) and (18) (Cash on hand & Wildcard Exemptions)
The “Dos and Don’ts” of Tax Refund Spending
If you happen to get your tax refund prior to filing your bankruptcy, it is then converted from “Earned Income Credit” and “Additional Child Tax Credit” to “Cash-on-hand.” Cash/bank accounts can be protected in a bankruptcy with the 2329.66(A)(3) cash-on-hand exemption of $475 and the 2329.66(A)(18) Wildcard Exemption of $1,250 = $1,725 TOTAL. This means that the remainder of your refund could be taken in the bankruptcy and used to pay your creditors, UNLESS IT IS SPENT ON ORDINARY AND NECESSARY LIVING EXPENSES BEFORE YOU FILE BANKRUPTCY!!
Do use the money to pay your attorney fee and court fee! Great investment to be debt-free!!
Do use the money to catch up on your car payment to ensure you have transportation to/from work!
Do use the money to catch up on your rent/mortgage arrears to ensure you keep a roof over your head!
Do use the money to buy food for your family
Do use the money to buy appropriate clothes and shoes for your family
Do use the money to buy a couch or bed, if your family needs them
Don’t use the money to repay loans from family/friends (repaying family/friends in the 1 year before filing bankruptcy will damage your ability to file bankruptcy)
Don’t give the money away to family/friends (large gifts to family/friends in the 4 years before filing bankruptcy will damage your ability to file bankruptcy)
Don’t spend the money foolishly, or lavishly (vacations or luxury purchases could block your ability to successfully complete your bankruptcy)
Don’t gamble away the money
Because there is no black-and-white list of what is “ordinary and necessary,” remember that a Bankruptcy Trustee is going to be asking you about the specifics of what you spent the money on, and may request receipts!
Tax season is an exciting time for those with debt, because it gives us an amazing opportunity to get out of debt, and begin with a FRESH START! It can be complicated to strategize when to file taxes vs. when to file bankruptcy, so leave it to the professional, and call me immediately!
-Lucas Ruffing, Bankruptcy Attorney