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In a few weeks taxpayers will begin filing their 2012 tax returns, and for those taxpayers who are also filing bankruptcy at the same time a large number of them will forfeit the refund to the Chapter 7 Trustee. For nearly 20 years I have witnessed the Chapter 7 Trustee seize tax refunds from unsuspecting debtors. This happens every year, over and over again. The sad part is, this should almost never happen.
Are tax refunds protected in bankruptcy?
Tax refunds and other financial assets are protected in Nebraska, but there is a limit as to how much. The laws that protect property in bankruptcy are called exemption laws, and there are two Nebraska exemption laws that protect tax refunds:

1. "Wild Card" Exemption (Nebraska Statute 25-1552). This exemption law protects up to $2,500 per debtor of any type of personal property, including tax refunds. Married couples filing a joint tax return may thus protect up to $5,000.
2. Earned Income Credit (Nebraska Statute 25-1556). This exemption protects whatever amount of the tax refund that comes from the federal and state earned income credit. There is no dollar limit to this exemption.

 What happens if my tax refund exceeds the amount of exemptions?
If your tax refund exceeds the amount of available exemptions, then the Chapter 7 Trustee has the duty to claim the non-exempt portion of the tax refund and to pay that amount over to your creditors.

Losing a tax refund to the Chapter 7 Trustee should almost never happen, but it frequently occurs because the debtor's attorney fails to conduct a thorough interview of the debtor and fails to properly estimate the amount of the tax refund.

Estimating the amount of a tax refund is tricky since tax laws change every year and the deductions or credits a person may claim change as well. The practice rule here is that if you are not 100% sure of what the tax refund will be, delay filing the case until the tax return is prepared.
Don't pay back loans to relatives with the tax refund prior to filing bankruptcy!
Another nasty problem associated with tax refunds occurs when a person uses the refund to repay loans owed to family members and then files bankruptcy shortly thereafter. This is a big mistake. Because bankruptcy law is designed to ensure fair and equal treatment to creditors, any payment made to a family member or "insider" (such as a business partner) must be disclosed and the Chapter 7 Trustee may be able to reclaim the money to redistribute to all of your creditors on a pro rate basis.
Be prepared to tell the Trustee how you spent the tax refund.
If you received a large tax refund and then shortly thereafter file bankruptcy, the Trustee will ask you what you did with the money. Where did all that money go? A good bankruptcy attorney will anticipate this question and provide the answer within the bankruptcy papers (usually on the line where tax refunds are listed). If you received a $10,000 refund and then filed bankruptcy 3 days later, be prepared for a lot of questions at court about how you spent the money.

In April 2005, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act, or “BAPCPA” as we bankruptcy attorneys call it. On the day BAPCPA passed, I was interviewed by our San Jose CBS affiliate, KPIX, about the sweeping changes to bankruptcy law contained in BAPCPA. Among consumer bankruptcy lawyers everywhere, there was a good deal of handwringing over what the new bankruptcy law would mean for the typical honest debtor needing a fresh start from Chapter 7 bankruptcy.
Sure, BAPCPA introduced the Means Test, thereby supplanting the insight and good judgment of local bankruptcy judges with standardized living expenses gleaned from the IRS, as to whether a Chapter 7 debtor could afford to make payments on her debts. And, yes, it required debtors to reaffirm their car loans, thus waiving part of their discharge. Perhaps most annoyingly, BAPCPA introduced the fairly inane requirement that all individuals filing personal bankruptcy complete credit counseling and debtor “education” courses in order to receive a discharge. But in the end, the sky didn’t fall, and once we bankruptcy attorneys all became familiar with the new requirements, and once the media hype died down, everyone realized that the powerful debt relief afforded by Chapter 7 bankruptcy remained the best option for many families drowning in debt.
Why am I rehashing this eight-year-old news now in 2013? Because one of the consequences of BAPCPA’s passage in 2005 was that Chapter 7 bankruptcy filings increased enormously between the passage of the act in April and the day it went into effect in October 2005. The hype surrounding BAPCPA led the public at large to believe that no one would ever qualify for bankruptcy relief again, or that it would become oppressively difficult to file. So it seemed nearly everyone with a bit too much credit card debt at the time filed Chapter 7 in the months leading up to October 15, 2005.
Of course, those folks who filed Chapter 7 in 2005 had no idea that just three years later, we would have a financial meltdown and that the Great Recession would thereafter scourge our economy for the ensuing four years. 2005 bankruptcy filers did not know then that in a few short years massive unemployment and a foreclosure crisis would put them in greater peril than they had been in 2005 with credit card debt.
Sadly, those who did receive a bankruptcy discharge in 2005 have been unable to seek bankruptcy relief under Chapter 7 again because BAPCPA also lengthened the number of years to eight that one must wait to obtain a successive Chapter 7 discharge. Sure, one may have filed Chapter 13 in as few as four years after that 2005 case was filed, but if you are unemployed with no source of income other than unemployment, it’s awfully difficult to show income sufficient for a feasible Chapter 13 plan. I’ve fielded dozens of calls from individuals who filed Chapter 7 back then, but who, through no fault of their own have lost jobs, incurred astronomical medical bills, lost their homes, and have been sued in the intervening years. Unfortunately, I’ve had to tell them, they could not file Chapter 7 again until 2013. If they couldn’t feasibly make Chapter 13 payments, they were just going to have to hang tough until then.
The good news for those who now have judgments against them for medical bills, credit card debt, car repossessions, and equity lines from foreclosed homes, but who couldn’t file Chapter 7 because they filed in 2005, this year you may file again. If you’re eligible for Chapter 7 because your necessary living expenses exceed your monthly income, and if you filed back in 2005, then count forward from the filing date of your last petition. You can file another Chapter 7 petition eight years from that date.
We’re consumer bankruptcy attorneys in San Jose, California. If you live in the Bay Area and have more debt than you can handle, give us a call for a free consultation.

It is not uncommon for a bankruptcy filer to have outstanding state or federal tax debt.  As is commonly known, tax debt is not dischargeable through either chapter 7 or chapter 13 bankruptcy.  In a chapter 13 case (at least in Utah), the bankruptcy filer will have to pay all of the outstanding tax debt through the 3-5 year plan.  Since there is no repayment plan in a chapter 7, filers under this chapter will need to work with the State or the IRS to arrange a payment plan or negotiation either before or after the bankruptcy.  Since tax debt is priority debt, if there is money that comes out of the liquidation of the filer's assets, these tax creditors would be the first to get paid.  However, since so many chapter 7 cases yield no return to creditors, most filers are faced with ongoing arrangements with the tax agencies in order to pay back these nondischargeable debts.Adam Brown is a bankruptcy attorney for Dexter & Dexter, a debt relief agency helping people file for bankruptcy.

Below is a guest post offering a concise description of the four main types of bankruptcy:

Know more about the 4 different types of bankruptcy
Bankruptcy is essentially a legal proceeding which involves either a person or business that isn’t able to repay outstanding debts. It offers an individual or business the opportunity to start afresh with debts being forgiven. It also offers the creditors some chance to obtain a certain measure of repayment based on the available assets. Theoretically speaking, bankruptcy is supposed to benefit the overall economy as well.
The different types of bankruptcy
The bankruptcy filings in the United States essentially falls under 4 categories. Read on to find out more.
1.      Chapter 7: This chapter essentially deals with a bankruptcy proceeding wherein a company stops all operations and generally goes completely out of business. There’s a trustee appointed for liquidating or selling off the company’s assets or in the case of an individual, his or her assets, and the money generated from this sale is used to pay off debts. As for the payments, then those investors who’ve taken the least risk are paid off first. This is one such phenomenon which is known as “absolute priority”.
2.      Chapter 11: This is a form of bankruptcy that essentially involves reorganizing a debtor’s business affairs plus assets. This particular bankruptcy is generally filed by corporations that mostly require time for reshuffling their debts. This is perhaps the most complex of all bankruptcy cases as well as the most expensive one. Experts are of the opinion that this particular case should only be considered after a lot of careful analysis and exploration of all other possible alternatives.
3.      Chapter 12: This particular chapter deals particularly with family farms or fisheries. This US bankruptcy proceeding endows the farm or fishery owner the ability to restructure his or her finances and debts while still being able to keep the farm or fishery. In this proceeding, the farm or fishery owner has to work with a bankruptcy trustee and his or her creditors to formulate a payment plan that’ll meet his or her own financial obligations.
4.      Chapter 13: This chapter deals with a US bankruptcy proceeding wherein the debtor takes on a reorganization of his or her finances under the supervision and the approval of the courts. The debtor also needs to submit a plan which he or she must compulsorily follow through. This would essentially involve a pay back plan wherein the debtor has to pay back his or her creditors the outstanding debt within a time span of 3 to 5 years. If required, then this can use cent per cent of the debtor’s income.
If you’re considering filing bankruptcy, then it always helps to gather knowledge about the entire process. This always gives you an easy start which is more than welcome.