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Can filing BK stop my tax refund from being taken for student loans?

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  • Can filing BK stop my tax refund from being taken for student loans?

    I am in Michigan. I have student loans, which are in default, from years ago. I haven't worked in a few years. This year I am working but not making much. I have been contemplating filing BK for a while. If I file bk before or right after I file taxes next year, would my taxes still get taken for my loans? I am not expecting huge returns, and would be able to use the Federal Exemptions in order to keep them.

    Thanks.

    MIGirl
    Last edited by MIGirl; 10-18-2014, 01:30 PM. Reason: my state

  • #2
    My attorney told me that a pro-rated amount of your tax refund belongs to the trustee. E.g., if you file tomorrow, 10/12 of your 2014 tax year refund will get taken by the trustee. So it doesn't actually matter if you file before you get your refund or after.

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    • #3
      Thanks Avengers, but that wasn't my question. My taxes will get taken because I have student loans in default. I wanted to know if filing bankruptcy after or right before I file taxes will get my tax return given to me instead of them taking it for my loans. Using Federal Exemptions, I should be able to exempt all of it, it won't be a huge amount, but I really need it. I do want to pay off my loans, but I have been homeless, and haven't worked much the past few years.

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      • #4
        The lender will not be able to get your tax refund while the automatic stay is in place. If you can exempt the refunds, you should be able to keep them.
        LadyInTheRed is in the black!
        Filed Chap 13 April 2010. Discharged May 2015.
        $143,000 in debt discharged for $36,500, including attorneys fees. Money well spent!

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        • #5
          Originally posted by LadyInTheRed View Post
          The lender will not be able to get your tax refund while the automatic stay is in place. If you can exempt the refunds, you should be able to keep them.
          Thanks LadyInTheRed. How long does the automatic stay last? Just trying to figure out the timing in relation to my tax return.

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          • #6
            The automatic stay lasts as long as your bankruptcy case is active.

            However, to repeat myself, the tax refund belongs to the bankruptcy estate, not to you. If you file bankruptcy before getting the refund, the refund will go to the estate. If you file for BK after filing the tax return, the refund will go to the lender. There is no circumstance where you keep your refund.

            http://www.nolo.com/legal-encycloped...bankruptcy.htm

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            • #7
              Originally posted by avengers View Post
              The automatic stay lasts as long as your bankruptcy case is active.

              However, to repeat myself, the tax refund belongs to the bankruptcy estate, not to you. If you file bankruptcy before getting the refund, the refund will go to the estate. If you file for BK after filing the tax return, the refund will go to the lender. There is no circumstance where you keep your refund.
              But I can use Federal Exemptions to keep my refund, correct? It's not going to be a huge amount, under 5k I am sure.

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              • #8
                I'm not entirely sure that avengers is correct. I think it depends -- for instance, if your refund is Earned Income Credit and/or possibly under some other conditions-- in some states it is protected, I believe.
                If you are homeless, you may want to think about if it makes sense for you to file at this time. You need to know you will be in a better position afterwards. Are you filing just to protect the refund? Has it been taken before? Can you adjust your withholding to make less for them to take?

                Keep On Smilin'

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                • #9
                  Ah, Federal exemptions allow a wild-card exemption. I'm not familiar with that, so I'll let others chime in.

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                  • #10
                    Originally posted by MIGirl View Post
                    But I can use Federal Exemptions to keep my refund, correct? It's not going to be a huge amount, under 5k I am sure.
                    Yes, if your state allows you to use Federal Exemptions and you use the wildcard to exempt the refund, then the trustee cannot get the refund. I assume the Federal Wildcard can be used for a refund, but have no experience using federal exemptions, so can't say for sure.
                    LadyInTheRed is in the black!
                    Filed Chap 13 April 2010. Discharged May 2015.
                    $143,000 in debt discharged for $36,500, including attorneys fees. Money well spent!

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                    • #11
                      Originally posted by LadyInTheRed View Post
                      The lender will not be able to get your tax refund while the automatic stay is in place.
                      On second thought, I can't say for sure that this is true for a tax offset for a federal student loan. Try calling the IRS at 800-304-3107 and asking.
                      LadyInTheRed is in the black!
                      Filed Chap 13 April 2010. Discharged May 2015.
                      $143,000 in debt discharged for $36,500, including attorneys fees. Money well spent!

                      Comment


                      • #12
                        While there may be some hurdles for a creditor exercising a tax offset, there are ways they can overcome any automatic stay. The creditor or the IRS would need to file relief from the automatic stay to "hold" the refund for an unreasonable amount of time (don't ask me what defines reasonable, but I would say several weeks) and/or to offset the "non tax" debt with property of the bankruptcy estate.

                        The key is really "when" the offset occurred and when the bankruptcy was filed. Has the IRS or the student loan company notified you of an intent to offset any tax refund?
                        Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
                        Status: (Auto) Discharged and Closed! 5/10
                        Visit My BKForum Blog: justbroke's Blog


                        I am not an attorney. Any advice provided is not legal advice.

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                        • #13
                          Originally posted by justbroke View Post
                          While there may be some hurdles for a creditor exercising a tax offset, there are ways they can overcome any automatic stay. The creditor or the IRS would need to file relief from the automatic stay to "hold" the refund for an unreasonable amount of time (don't ask me what defines reasonable, but I would say several weeks) and/or to offset the "non tax" debt with property of the bankruptcy estate.

                          The key is really "when" the offset occurred and when the bankruptcy was filed. Has the IRS or the student loan company notified you of an intent to offset any tax refund?
                          A few years ago they tried to take it, but I didn't work, only my then dh did, so he filed an injured spouse form and we got the whole tax refund. I don't know if I have gotten any notices lately. When I worked about 4 years ago, I was getting them out of default and they didn't take it. I haven't worked so I haven't filed taxes for 3 years.

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