The Tortuous Tie – Tax Refunds and Bankruptcy in Indiana

April 27, 2012 1:02 am Published by

A new study from Washington University, Columbia University and the University of Chicago suggests that people are using their income tax refund to file for bankruptcy, reports the Huffington Post.

Ah, but any one of the Indiana bankruptcy lawyers who work in the Zuckerberg bankruptcy law offices could have told you that!

According to the article, bankruptcy filings increase after people receive their refunds. The issue: It costs money to file for bankruptcy and many Americans could not afford to pay fees necessary to file without the refund money.  “The 2005 Bankruptcy Abuse Prevention and Consumer Protection Act raised the legal and administrative fees from an average of $921 to $1,477 and mandated the filer pay for credit counseling,” the article goes on to explain.

For the past two months, I and my colleagues the Anderson, Bloomington, Indianapolis, and Columbus bankruptcy lawyers have had our hands full with questions that have to do with tax refunds and taxes, as you might imagine. Now that the April 15 tax deadline deadline has passed, it might be a good time to sum up all the “ties” between bankruptcy and taxes for the benefit of our Bankruptcy in Indiana readers.

First, one of the top 15 myths about bankruptcy in Indiana is that you can’t use it get rid of back taxes. But, of course you can.  As a debt consolidation lawyer offering Indiana bankruptcy help for more than 25 years, I can tell you – we get rid of taxes for our clients all the time. It’s true that filing bankruptcy in Indiana – whether that’s bankruptcy Chapter 7 in Indiana, Chapter 13 bankruptcy law in Indiana, or even small business bankruptcy – does not get rid of payroll withholding tax or of sales taxes.  But when it comes to income taxes that are more than three years old – those taxes are very often discharged in bankruptcy.

Now, what about those tax refunds? If you’ve already received your money and you still have it, it will need to be reported as part of your assets on the bankruptcy paperwork, that is, unless you use the money to pay the fees for the bankruptcy itself.

If you’re still waiting for the refund, the court will need to know you’re expecting the money.  Again, if that money is needed for legal fees, that will be disclosed in your paperwork as well.

“According to our research,” says Washington University’s Jialan Wang, “bankruptcy fees prevent the most financially distressed households from being able to file, and tens of thousands of households will have trouble saving up for bankruptcy in 2012.” 

Nothing, however, needs to stand in the way of your having a no-cost, no-obligation exploratory meeting with one of our good bankruptcy attorneys in Indiana!


 

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This post was written by Mark Zuckerberg

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