For many, filing taxes is a complex and overwhelming process. However, when you get your tax return, it may all seem worth it, especially if you are in debt. Unfortunately, if you plan on filing for bankruptcy, these funds could be at risk. That’s why it’s in your best interest to connect with an experienced Memphis, TN consumer bankruptcy lawyer who can help you navigate these complex matters. The following blog explores what you should know about how bankruptcy will impact your earned income credit.
What Is Earned Income Credit?
Depending on how you file, the Internal Revenue Service can take more out of your paycheck each period, meaning you’ll get a bigger return when you file, or they will take less from your pay, meaning you’ll get a smaller return. However, depending on your financial circumstances, you’ll find that you can be granted a financial benefit that reduces how much you owe. These are earned income credits extended to those with children or a spouse they plan on filing jointly with if they are under 64 years old. As such, if you are granted a credit based on your family size and additional factors, it can be used to reduce how much you owe. If your credit exceeds your return, you can receive the extra funds as a return.
Does Bankruptcy Impact EIC?
If you are granted an EIC during a bankruptcy filing, it’s important to understand what can happen to that credit. When you receive additional funds, it can be taken by the bankruptcy trustee assigned to your case and used to repay creditors. As such, understanding what you can do to protect your tax return is critical, as these funds can be helpful.
If you choose to file Chapter 7 bankruptcy, you may be able to utilize an exemption to help protect these funds from being used for your bankruptcy case. However, as Tennessee does not have a specific EIC exemption, you’ll have to use the Wildcard Exemption which protects up to $10,000 of your personal property.
Should you only qualify for Chapter 13 bankruptcy, you may not know hoq to protect these funds. Generally, you can only protect the funds you receive in the year when you file your bankruptcy case. This exemption typically does not extend to the following years. As such, the EIC you receive in the years after filing bankruptcy will be considered disposable income by the court, meaning it will be used to pay creditors.
Filing for bankruptcy is a complex process with a number of considerations that must be made. As such, it’s in your best interest to connect with an experienced attorney who can help you determine the best course of action to protect your assets during this process. At the Arnold Law Firm, we understand how complicated bankruptcy can be, which is why we are dedicated to guiding you through this process. Connect with us today to learn how we can assist you through these times.
