Filing for bankruptcy can feel overwhelming, especially when tax season rolls around. For Minnesotans considering Chapter 7 or Chapter 13 bankruptcy, understanding how tax returns and refunds fit into the process is essential. While every situation is unique, there are some general rules that typically apply in Minnesota.
- Tax refunds are considered an asset.
When you file for bankruptcy, the court looks at everything you own on that date, including your expected tax refund. In a Chapter 7 case, the trustee may be able to take part of your refund to pay creditors unless it’s protected by exemptions. Minnesota filers can either use the federal exemptions or the Minnesota state exemptions, depending on whether they own real estate, which differ in how much of your refund they can protect. - Earned Income Credit and Working Family Credit are usually protected.
Minnesota has strong protections for certain tax credits that are meant to support modest to moderate-income households. These credits may be exempt from collection in bankruptcy, though you still usually need to disclose them in your petition. - Filing accurate and timely tax returns is mandatory.
If you’re filing Chapter 13, you must be up-to-date on your last four years of tax returns before your repayment plan can be confirmed. For Chapter 7, missing tax returns can delay or complicate your case. The court and trustee use your returns to verify your income, assets, and financial history. - Past-due taxes may or may not be dischargeable.
Some older income tax debts can be erased in bankruptcy if they meet specific requirements. However, recent tax debts, fraud-related debts, or debts tied to unfiled returns are usually not dischargeable.
CALL NOW FOR A FREE STRATEGY SESSION FROM AN MN BANKRUPTCY LAWYER AT LIFEBACK LAW FIRM
Because tax law and bankruptcy law intersect in complex ways, the right legal team can help you protect your refund and make the bankruptcy process smoother. Whenever you are ready to get your life back from your creditors, reach out to Minnesota’s kindest and most helpful bankruptcy law firm at www.lifebacklaw.com.
