If you are facing some serious financial problems, a guess that you are short on cash is not much of a stretch. Some people hesitate to file for bankruptcy protection because they believe they need to hire a bankruptcy attorney, but think they won't be able to afford one. While they are absolutely right about the first part--an experienced bankruptcy attorney is essential to a successful bankruptcy--they may be surprised to learn how affordable legal services can be. Still, like most good things in life, the assistance of a qualified bankruptcy attorney won't come for free; so how can you pay for it?
Don' t forget that this is the time of year when employers start sending out those W2's. Like many Americans, you probably use your payroll tax deductions as a kind of savings plan, paying out more than you will owe at the end of the tax year and collecting a nice refund. For people in financial problems, that refund may end up getting spent before it arrives, but before you commit the money to anything else, take a good look at your finances--what better way to spend a small "windfall" than on your long-term financial success and peace of mind? At least read to the end of this article before you even think about getting a "refund anticipation" loan and throwing away good money on debts you can no longer handle.
But wait--If you file for bankruptcy protection, do you even get to keep the funds from your income tax refund? In some cases the answer is no: the bankruptcy court will consider the funds part of the estate and may apply it toward, for example, paying some debts. The bankruptcy court will count the refund as applying to the year when you file bankruptcy and any year ending before that. Thus, someone who files for bankruptcy protection in November 2009 will have to keep an eye out on the taxes he is allowed to file until April 15, 2010. If you are expecting a return, a good way to coordinate your efforts is to consult a bankruptcy attorney early so that you can start to plan for a successful bankruptcy filing.
One way to make sure you will retain the benefit of your year-long sacrifice to the payroll deductions is to elect to apply the amount you are refunded toward the following year's taxes. Some courts may take a dim view of this tactic, however, so it's best to run it past your bankruptcy attorney before striking out on your own. A better way to make sure you retain the benefit of your taxes is to time your bankruptcy carefully, so that you are able to put the money to good use before filing. Good timing is essential to a successful bankruptcy, yet another reason the advice of an experienced bankruptcy attorney is essential. An attorney will help you time your bankruptcy so that you can spend the money from your income tax return rather than see it land in the clutches of your creditors.
If you are behind on your taxes, child support or on student loans, the situation becomes a little trickier because the government may be able to hold on to your refund and apply the money toward those kinds of priority debts. If you are in this kind of financial trouble, it is especially important to contact a bankruptcy attorney early so you will know what to expect.
And remember, you do NOT need to rely on a refund anticipation loan to get the money quickly. These loans are a little like payday loans in that they're a lot like a rip-off. The IRS now allows you to file your taxes online and to sign up for direct deposit of a refund to your bank account, so if you are entitled to a refund you can have it in hand in a matter of days. You don't have to pay a penny to opt for this fast, convenient method, so before you know it, you could be putting that tax refund toward a very valuable investment: your financial freedom.