My colleague, attorney Chip Parker from Jacksonville, has written a timely post in the BankruptcyLawNetwork blog about how to save your income tax refund if you are thinking about filing for bankruptcy. Chip suggests that you file your tax returns sooner rather than later, then spend your refund on ordinary and necessary expenses. You would have to reveal receipt of the income tax refund on your bankruptcy schedules, but you would have the benefit of the money and the odds are very small that your bankruptcy trustee would challenge your use of this money.
Chip’s advice falls into the general category of “pre-bankruptcy planning.” Under the current bankruptcy law, pre-bankruptcy planning has become increasingly important. Now, more than ever before, the bankruptcy laws empower trustees and creditors to try to squeeze whatever they can from debtors. All the paperwork your file will be scrutinized. “Good faith” and “best efforts” have been replaced by demands for documents, proof of income and expenses, and tax returns.
In some cases, the means test will show “disposable income” when in real life, there is nothing there. In this unfriendly environment, you, as the debtor, need to look for every opportunity to protect and preserve your assets and cash flow. Do not assume that the bankruptcy system will give you any breaks.
I know I sound like a broken record, but START EARLY. Don’t wait until the lawsuits are filed or the repo man in circling before talking to a lawyer. If I could send one message out to people in even mild financial distress, it would be to find a bankruptcy attorney long before you are facing any sort of emergency. In January alone, I met with over ten potential debtors who could file now, but who will have a much better result if they wait for two or three months. Sometimes, the goal is to create a paper trail of payments to creditors to show good faith, and sometimes the goal is to water down the effect of a one-time bonus for median income purposes.
There are enough pressures on bankruptcy debtors under the new law. Find a lawyer who will act aggressively on your behalf and fight back!
[tags] income tax refund and bankruptcy, Chip Parker, Bankruptcy Law Network, pre-bankruptcy planning [/tags]