During income tax refund season, people often make plans about how they want to use the money they will receive. If you are one of the individuals who has crushing debts and will get back a refund, there are some things that you need to think about before you do anything with your income tax refund.
One thing to remember is that if you are expecting a refund, you shouldn't file for bankruptcy until after you receive the money. If you file before, the money will likely be handed over to the trustee to help pay down the debts you owe. Instead, consider these options for using the tax refund.
Find out if your refund will be intercepted
Before you make any plans for your refund, find out if your refund will be intercepted. There are four reasons why this might happen. One is that you have defaulted on your student loans, which means that the funds will be applied to them.
It can be intercepted if you owe past due child support. Even if the children are adults now, it will be taken to pay down the arrears. Past tax debts that are outstanding can trigger an interception. Finally, if you've already filed for bankruptcy, the refund can be routed to the bankruptcy court, but there is a chance that some portion of it will make it to you if you filed a Chapter 7 case.
Decide what to pay off
If you are sure that you are going to file for bankruptcy, don't start making payments on debts. If you do start to pay creditors, the court might construe that as you playing favorites with certain ones, which can lead to problems with your bankruptcy case. Instead, use the money to pay for things that won't be included in the filing. For example, you can get caught up on rent or make payments on your utility bills. You can even use the money for some needed home repairs or similar expenses. Consulting your bankruptcy attorney is your best option if you have questions about what you should do with the refund.
Another thing you can do with the tax refund is pay for your bankruptcy filing. This can be costly, depending on your circumstances. Using the money you have for this can help you to secure a path to financial freedom in the future.