Tax Return Time: Using Your Tax Return Wisely

Our Mesa and Tempe chapter bankruptcy lawyers take a look at some of the best ways to spend your tax return if you are anticipating filing for Chapter 13 or Chapter 7 bankruptcy in Arizona. Often, people are not aware and spend their tax returns in a way that then requires a waiting period or a postponement of a potential bankruptcy filing.

It’s Tax Refund Time! How To Spend It

Life seems to be getting more expensive faster than ever. If you feel the same, you’re probably looking forward to receiving your tax refund. For some people, a tax refund could amount to a luxury item or trip that wouldn’t fit in their budgets otherwise. But for others, tax refunds are almost essential to an annual budget, or will probably be used to pay off debts. No matter what your situation is, if you expect to receive a tax refund, you should have creative and useful plans of how to spend it in place. But if you’re planning on using your tax refund to pay just a chunk of massive debts, bankruptcy might be a better option for you. And if you file bankruptcy, you need to be careful about your spending in the time beforehand. For your free consultation, call 480-405-1010 or use our online appointment scheduler to let us know when is best for you.

Your Tax Refund & Monthly Debts

If you have a relatively small amount of debt, paying it off in one chunk rather than continuing your monthly installments could actually save you money in the long run. For example, if you have a substantial balance on a high interest credit card, paying it off with your tax refund could save you all those future interest payments. It also takes away the chance that you ever suddenly become unable to keep up with your monthly installments, prompting the creditor to obtain a judgment against you and garnish your wages or bank account. It might be more fun to spend your tax refund on something else, but if you can actually get a handle on your debt situation with your tax refund, it’s probably a wise choice.

Your Tax Refund & Servicing Old Debt

Maybe your debt isn’t from a recent source. If so, you should do some research before spending your tax refund towards paying it off. There may be a statute of limitations that applies, preventing your creditor from pursuing you for the balance. Or, filing bankruptcy could be a better way to deal with it. For example, recent tax debts can’t be discharged in a Chapter 7 bankruptcy. But if they have been due at least 3 years, filed for 2, assessed at least 240 days prior, and the filing wasn’t fraudulent, they can be cleared in a Chapter 7 bankruptcy just like credit card debts and medical bills. If you’re considering spending your tax refund on an old debt, you should at least discuss your options with a Mesa bankruptcy attorney first.

How To Make Better Use Of This Year’s Tax Refund

So maybe you have come to the conclusion that you should file bankruptcy rather than spend your tax refund to pay your debts. But in Arizona, your tax refund isn’t protected. The trustee can take a certain percentage of your tax refund if you don’t time your bankruptcy filing appropriately. This is because your tax returns aren’t exempt, and there isn’t some other exemption you could use to protect them in Arizona, such as a wildcard exemption. Arizona also has strict bank account exemptions, so you can only have $300 in your accounts on the day of filing as an individual, and $600 as a married couple. This usually means that it will be more strategic for you to spend your tax refund before filing your bankruptcy.

Here are some ideas of how to reasonably spend your tax refund while preparing for a bankruptcy filing:

• Medical and dental care

• Vehicle repairs and maintenance

• Stocking up on household essentials like toilet paper, paper towels, etc.

• Reasonably priced furniture

• Buying school clothes and supplies for your children

• Reasonable wearing apparel for yourself, especially if it’s for work

• Bankruptcy attorney’s fees and court cost.

The key before a bankruptcy filing is to always make sure your spending is reasonable. The trustee probably won’t have an issue with you running to Target or Home Goods to replace broken or ratty furniture. But luxury spending and vacations are a general no-go before bankruptcy. In fact, if you make luxury purchases on credit cards before your bankruptcy, they may not be discharged in your case. You may not spend more than $750 on luxury items on your credit cards in the 90 days before you file your bankruptcy petition. This could be anything from designer clothes and accessories, expensive restaurants, massages and nail salons, Vegas trips, and more. You also may not use cash advances of more than $1,000 in the 70 days before you file your bankruptcy petition. This is to keep people from purposely opening new credit cards, max them out, and discharge them in bankruptcy without the intention of ever repaying a cent.

Another important consideration in your pre-bankruptcy spending is that you can’t favor one of your creditors over the others. You may be thinking that you dislike all of your creditors equally. However, many of our clients will forget that they owe their parents, relatives, or friends a chunk of change and repay them before their bankruptcy filing. This is known as a preferential payment, and isn’t allowed in a bankruptcy filing. Your bankruptcy trustee will require that those funds be returned to the bankruptcy estate to be spread more evenly among your creditors.

Using Your Tax Refund To Invest In Yourself

If you’re on the brink of a major life change, your tax refund could actually be a vital tool to help you better yourself. For example, if you know you will soon be filing for bankruptcy or divorce, you probably want to make some major changes in your life. Here, a tax refund could be used to help prepare your assets for sale and property division. Maybe a tax refund could be used towards a certificate or educational program that will help you advance your career. If you own your own business, these funds could also be used to invest in business upgrades. You might want to finally take the leap into investing, whether it be in stocks, crypto, or other business ventures. Even if it isn’t financially motivated, signing up for classes like cooking or yoga could help you gain more balance in life. You are your most important asset, so you should never feel guilty when you do the things you need to do to take care of yourself and keep yourself happy.

Our Arizona Bankruptcy Attorneys Will Help You Make The Most Of Your Filing

Losing your tax refund to your bankruptcy trustee could be just one of the several concerns you have about filing for bankruptcy protection. Your petition needs to be detailed, precise, thorough, and its filing must be timed carefully. Mistakes could cost you thousands, delay your case, result in the loss of your assets. In extreme cases, bankruptcy debtors can see their case dismissed or even be charged with bankruptcy fraud. That’s why you should leave all the potential pitfalls in a bankruptcy case in the hands of a professional. Our Arizona bankruptcy lawyer team has decades of experience assisting our clients through each step of the bankruptcy process.

Contact Arizona Bankruptcy Attorney Team For Assistance

From your free initial consultation, to your Arizona debt discharge, we will answer your questions and address your issues promptly and courteously. We do all of this at fair rates, and offer payment plan options for qualified clients. To learn more, call 480-405-1010 or use our online form for your free consultation today.  Additionally, we offer a $0 Down Arizona Bankruptcy Option, a File Now and Pay Later Option, and a Bankruptcy by Phone Option. Contact our experienced bankruptcy attorneys for assistance.