20 May Can I Keep my Tax Refund in a Massachusetts Bankruptcy?
Here in Massachusetts, most people can keep their entire tax refund in bankruptcy. It is important to note that one never loses property in a Chapter 13 case. This is the case because Chapter 13 is a reorganization chapter while Chapter 7 is the chapter that requires the liquidation of non-exempt property.
In a Chapter 7 case, an anticipated tax refund is a property interest which must either be exempted or turned over the the trustee. Most people can exempt their tax refunds here in Massachusetts because we can choose the federal exemptions (and, thus, the valuable wild card exemption). Note: if you must choose the Massachusetts exemptions (instead of the federal exemptions) because, say, you have substantial home equity, you will not be able to use the federal wild card exemption to protect a tax refund.
However, even in these circumstances a bankruptcy can often be timed to preserve a tax refund, especially if you are living with a negative cash flow.
Nicholas Ortiz, Boston Bankruptcy Attorney
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