Are you considering declaring bankruptcy, but are afraid you'll lose your tax refund? I get that question a lot  as the tax season approaches.

Let’s say you are contemplating filing a Chapter 7 bankruptcy, and have calculated that you’ll be receiving a $2,500 tax refund.  What should you do?  Should you file your taxes now? File your petition first? Not say anything?

My answer is the same each time. If it's tax season, than most likely the trustee (who acts as a sort of like a judge in a bankruptcy case) will consider the tax refund as property of your bankruptcy estate, regardless of whether or not you’ve filed your taxes.  The answer is the same regardless of when you file your case - the trustee will consider the refund whether you file your case before you receive the refund, or after.  You never want to hide any assets from the bankruptcy court, as this would be grounds for a dismissal of your bankruptcy petition.  Additionally, you could face formal charges and its simply just not good karma.   

Now for the good news:  There’s a good chance that you'll be able to keep your refund because it may be covered by exemption laws. These are the laws that allow you to keep some assets after bankruptcy.  (There’s a myth out there that if you declare bankruptcy, you are left with nothing but the clothes on your back. Biggest myth ever.)  Whether or not you can keep your refund will depend on the value of the other assets you own (car, savings, clothes, furniture, tools of the trade, equity in home, etc.).  These days, when so many families are upside down on their mortgages and/or have lost their homes, they have few assets - so they're able to keep their tax refund.

If you already have the refund in hand, don’t (I repeat don’t) use your tax refund to repay a debt. If you repay more than $600 to say, your aunt, the trustee will count that as a “preference” and can take money back.  Now, if you need to use the money for living expenses (i.e. food, gas, car repairs, etc.), that's a much better idea.

As always, facts make a world of difference, so always talk with an attorney to make sure you do what’s right in your specific situation.  If you're in the San Francisco Bay Area and need a bankruptcy attorney, I am always happy to help.

The broken economy is hitting everyone hard, and if you're thinking about filing bankruptcy, you're not alone.

The headline of today's Contra Costa Times featured a story about the huge increase in bankruptcy filings all over the San Francisco Bay Area.  Filings by Alameda and Contra Costa county residents increased 59% over last year, filings by San Francisco, San Mateo, and San Joaquin county residents increased 62%, and filings in Santa Clara, Santa Cruz, Monterey and San Benito increased by 50%. 

The article notes that even people with higher incomes - over $150,000 - are being forced to declare bankruptcy due to large debt and their inability to get modifications to their home loans.

One of the biggest things that prevents people from declaring bankruptcy is the perceived stigma attached.  We're conditioned to think about bankruptcy as synonomous with failure.  As something only "irresponsible" people do.  Perhaps you hold these beliefs yourself.  I ask you to let that belief system go.

This article is proof positive that thousands of good people - just like you - are declaring bankruptcy in droves right now.  They're not failures.  They're not irresponsible.  They're doing the very best they can in a very ugly financial world. 
Take comfort in knowing you are not alone.  Declare bankruptcy if you feel it is right for you.  And go forward, unburdened, with a fresh start and new hope for the future.