Will I Lose My Tax Refund If I File Chapter 7 in Minnesota?

Posted by Jesse Horoshak on February 21, 2021 at 7:30 AM
Jesse Horoshak
Dollar bills in increments of $50 and $100 are strewn on a white table next to a United States Treasury check and piece of paper that says "IRS", posing the question, Will I Lose My Tax Refund If I File Chapter 7 in Minnesota?

One of the most common questions that we hear around this time of year is whether potential clients will lose their tax refunds if they decide to file a Chapter 7 bankruptcy.. The short answer is that it really depends on each individual situation, but in a great many of the cases that we file, the tax refunds can be protected. 

When an individual files a bankruptcy, the tax refunds can be protected if the rules in that particular case allow for their protection. The protections available to each debtor are determined by whether they are homeowners, and if so, the amount of equity in that home.

In many cases that are filed, debtors are allowed to use the Federal exemptions, which provide protections that can be used for tax refunds. In other cases, debtors are required to use the Minnesota state exemptions, which also provide some protection for tax refunds, but the protections only protect specific portions of any given refund.

Federal Exemptions

The Federal bankruptcy exemptions provide a “wildcard” exemption that can be used to protect a variety of assets, including tax refunds (other items include cash, money in the bank, guns), but is limited to a total $13,900 per person, so although in most cases this is more than enough to cover tax refunds, that still must be determined on a case by case basis. 

Minnesota State Exemptions

The Minnesota state exemptions do not have a specific exemption for tax refunds, however, the courts have ruled that a portion of tax refunds falls under the statute that protects certain “need-based” benefits because the credits are only available to those who qualify based on their financial circumstances. As such, the portion of an individual’s Federal tax refunds that are attributable to Earned Income Credit, and Minnesota state tax refunds that are attributable to Minnesota Working Family Credit, are protected.

Tips and Advice

-If you typically receive large refunds, it may make sense to speak to a tax professional about whether you are over withholding for tax purposes, getting that corrected may result in more money in your pocket each month!

-The timing of your bankruptcy filing can also affect whether your refund can be protected—we can help you navigate this!


If you are currently contemplating a bankruptcy filing and are wondering if your tax refunds will be protected, please do not hesitate to reach out to Minnesota’s nicest bankruptcy law firm at www.kainscott.com for a free consultation to find out. We look forward to hearing from you and helping you get rid of your debt and get your life back!


Topics: Taxes, Chapter 7 Bankruptcy

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