For many Texans, a tax refund is not extra money—it’s used to pay rent, buy groceries, or make necessary vehicle repairs. When you’re struggling to meet your obligations and have decided that your best option is to get a fresh start through bankruptcy, you may be surprised to learn that such a filing can put your tax refund at risk.
Tax refunds are not automatically lost in bankruptcy, though. More often, poor timing and bad advice may cost you money you could have protected. At the Law Office of Carrie L. Weir, we regularly counsel clients on how to file bankruptcy without unnecessarily surrendering anticipated and needed tax refunds.
How Tax Refunds Are Treated in Bankruptcy
Under U.S. bankruptcy law, a tax refund is considered an asset. That means the bankruptcy trustee has a duty to review it, just like a bank account or vehicle. Even a modest refund can become an issue if it is not handled correctly. Refunds are closely examined because they are predictable and easy to trace.
What matters most is when the refund was earned, not when it is received. If a refund is based on income earned before the bankruptcy filing date, all or part of that refund may be considered property of the bankruptcy estate.
For example, if you file bankruptcy in March, the portion of your refund attributable to income earned before filing may belong to the bankruptcy estate—even if the IRS hasn’t issued the refund yet. Timing is everything. This timing issue is one of the most common reasons clients seek guidance from the Law Office of Carrie L. Weir.
Protecting a Tax Refund in Chapter 7
In Chapter 7 cases, the trustee may request turnover of a tax refund that is not protected by exemptions. Texas does not have a specific exemption for tax refunds, but refunds may sometimes be protected using available personal property exemptions, depending on the facts.
Experienced bankruptcy attorneys also help clients plan before filing. This can include using a refund for necessary living expenses or exempt assets before filing, as long as it is done transparently and within the law. You cannot, however, hide a refund, transfer it to friends or family, or fail to disclose it. If the bankruptcy trustee or the court learns that you have engaged in any of these activities, you may face allegations of bankruptcy fraud and may have your petition dismissed.
Protecting a Tax Refund in Chapter 13
Chapter 13 handles tax refunds differently. Many Chapter 13 plans require debtors to turn over tax refunds during the repayment period as additional disposable income. However, this is not always absolute.
In some cases, debtors can keep part or all of a refund if the plan is structured correctly or if the refund is needed for necessary expenses. This is where careful drafting and negotiation matter. Assumptions about refunds often lead to frustration if expectations are not set upfront. The Law Office of Carrie L. Weir structures Chapter 13 plans with refund expectations addressed upfront to avoid surprises later in the case.
Common Mistakes That Put Tax Refunds at Risk
Some of the most common problems include:
- Filing bankruptcy without considering an upcoming refund
- Spending a refund improperly right before filing
- Failing to disclose an expected refund on bankruptcy schedules
- Relying on generic advice instead of case-specific legal guidance
How a Texas Bankruptcy Lawyer Can Help Safeguard Your Refund
Protecting a tax refund requires understanding both bankruptcy law and timing strategy. A Texas bankruptcy lawyer reviews prior tax returns, estimates expected refunds, and determines the safest filing window. The goal is compliance with the law while preserving as much of your financial footing as possible.
Read Also: Chapter 13 Can Handle Federal Income Tax Debts
Take Action Today to Protect Your Financial Fresh Start
A tax refund can be an important part of your financial recovery. With the right planning, it may be protected instead of lost.
At the Law Office of Carrie L. Weir, we help clients across Rockwall, Kaufman, Dallas, Collin, and surrounding counties navigate bankruptcy with precision and foresight.
Contact us online or call 972-772-3083 to schedule your free consultation and learn how to protect your tax refund while working toward a true fresh start.
