When you consider that approximately 85% of people filing bankruptcy in Michigan are entitled to a tax refund, the connection between taxes and bankruptcy begins to become less subtle. Your tax returns from prior years are used as evidence of your adjusted gross income during a bankruptcy case. These are provided to the trustee in bankruptcy before your meeting of creditors.

Taxes deducted from your paycheck are NOT counted as income for purpose of the Schedule I income calculation. This is important in a Chapter 7 where your monthly expenses must exceed your income. It is also important in a Chapter 13 where Schedule I might be used in calculating your plan payment.

Any tax refund you might receive affects and is affected by your bankruptcy as well.

In a Chapter 7, your refund is property of the estate and is subject to seizure if it is received within 90 days before filing or up to 180 days after discharge in many situations. If it is not received in that period, the Eastern District of Michigan indicates that it still has to be prorated and exempted. In a Chapter 7, if you can plan a little ahead, you may be able to prevent this money from being used to repay your creditors.

If you have no home equity to exempt and very little other assets your tax refund will probably be exempt. The key word is probably. It is important to get expert legal advise to find out how your tax refund is going to be handled in a bankruptcy case. Your tax refund amount matters less if you do not qualify for a Chapter 7 and file Chapter 13 instead because that money will likely end up with the trustee.

Please consult Chimko and Associates at 877.334.3922 for details more specific to your case.

Running up your credit cards prior to filing bankruptcy in Michigan ( in anticipation of filing ) may cause your debt to be non-dischargeable.  It may become non-dischareable on the grounds of “fraud” and you can be fined at a minimum. The bankruptcy trustee can review your purchases prior to filing for bankruptcy and may make these debts nondischargeable.

You should get legal advice concerning large amounts of credit card debt incurred for “luxury goods” right before your bankruptcy. Don’t buy that large screen TV before filing!

The banks themselves may also file for “Adversary proceedings in bankruptcy court” to contest the dischargeability of these debts. Therefore, you may end up being liable on these fraudulent debts despite the bankruptcy filing; and, worse, may also result in having your bankruptcy case dismissed.

Bankruptcy Code presumes it to be fraudulent and therefore nondischargeable: if: (a) a consumer incurs a debt to any single creditor totaling $500 for luxury goods or services incurred within 90 days before the filing; and, (b) cash advances on credit card obtained within 70 days before the filing are also presumed to be nondischargeable.

The bottom line – don’t “Charge it up” before filing and always work with a reputable bankruptcy attorney.

We don’t think there is a more misunderstood part of bankruptcy as exemptions.  Exemptions is one of the major reasons a person should file bankruptcy with the help of an experience bankruptcy attorney rather than alone.

Persons in Michigan are allowed to exempt (keep) the basic assets that allow you to continue with a “fresh start”  when filing bankruptcy. The bankruptcy code does not require you to sell off everything and live in financial ruin.

You will still need a place to live, transportation and relief from debt. In some cases, filing bankruptcy in Michigan may allow you to avoid foreclosure on your home. Your home would be considered “exempt property.” 

When filing forms for bankruptcy the debtor (which is you) claims certain property as exempt. If no objections are filed to the exemptions, they become final 30 days after the first meeting of creditors. Your claimed exempt property is then not part of the bankruptcy estate.

The purpose of Chapter 7 bankruptcy is to get a fresh start.  That is possible if the debtor (you) has something with which to start.

Household goods are usually exempt because they have little resale value and offer little to take, sell and pay creditors.

Pension and retirement plans are excluded from bankruptcy  and therefore, not subject to the reach of the bankruptcy trustee.

IRA’s and other retirement savings may be property of the estate but are frequently exempt. The 2005 amendments to the Bankruptcy Code increased the exemption for IRA’s for all debtors, regardless of state of residence.  Check with a bankruptcy attorney in your state to find out your State’s limits

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