What is the best time to file bankruptcy?
This is a great question. One factor to consider are whether you have an urgent situation that is imminent like a garnishment. Another, and often more severe factor to consider is your tax filing status. What you are trying to avoid here is the bankruptcy trustee taking your tax refund. Most people that qualify for a Chapter 7 will have a tax refund.
How much of your tax refund can the bankruptcy trustee take?
The easiest way to learn the rule here is that the trustee may take 1/12 of your tax refund for every month of the year until you file. For example, if you filed your bankruptcy case in July of 2011, the trustee could take 6/12 of your tax refund that you actually are going to recieve in the Spring of 2012. If you file in November 2011, the trustee will take 11/12 of your tax refund received in 2012.
However, if you file early in the year, the trustee is going to take the previous years tax return if you haven’t got it yet. So, if you file in March of 2011 and you haven’t done your 2010 taxes yet, the trustee is going require you to do your taxes within 30 days, usually. If you get a tax refund, he is going to take it and forego trying to get your tax refund in 2012 for the 2011 tax year.
What does this all mean?
The way to stop the trustee from getting any tax refund money is to either not have any withholdings taken out of your check or to file in the early part of the year, but after you already got your tax refund. In other words, do your taxes and get your refund in March and file in April. This is the optimum time to file becuase as long as you spent your money the trustee has no claim on the previous year’s refund that you just got and the case will need to be closed before you actually do your next year’s taxes.
This can be a little confusing, so please call Matt Wadsworth with Arnold, Wadsworth & Coggins Attorneys for a free consultation at 801-475-0123.
Matt Wadsworth is a partner at Arnold, Wadsworth & Coggins Attorneys providing bankruptcy services in Salt Lake City, Layton, Kaysville, Ogden, Syracuse, Roy, North Ogden, South Ogden, South Weber, Bountiful, West Valley City, South Jordan, West Jordan, Sandy, Murray, Holliday, Farmington, Midvale, Draper, Harrimen, Riverton, Riverdale, White City, Utah.
