When facing the possibility of filing for bankruptcy, there are many things that you have to think about. When this close to income tax season, you may be wondering what you will do if you are expecting a tax return. There are several things to consider so be sure to look at all your options.
It is imperative that you don't let your desire to be out of debt cloud your judgment. The last thing that you need at this point is to make serious errors that could have a negative impact on your finances.
If you haven't filed
If you haven't filed bankruptcy yet, you probably shouldn't use your tax return to pay off creditors. The reason for this is that you may need that money to pay the fees associated with filing. History shows that Chapter 7 bankruptcy filings tend to spike around income tax season. The filing fees aren't cheap, so make sure you know what you will need to come up with to get your case before the court.
Making the decision
If your debts aren't considerable and can be covered completely with the tax return, you might be able to avoid having to file bankruptcy. This isn't the case for most people who are considering bankruptcy. Many individuals in this position are so far in debt that the income tax return won't even come close to paying the bills.
Setting your budget
Before you decide what to do with your refund, set your budget. If you decide to file bankruptcy, this can be helpful as you learn to live only on your own income. If you decide not to file, this can set you up for financial success and might let you see where you can have some money to pay creditors off.
Warning about creditors
One thing to remember is that unless your debts are government debts, such as student loans or past due taxes, creditors can't garnish your income tax refund. This gives you an advantage since you aren't going to be forced to spend the money on paying them off. Getting your tax refund might be the boost that you need to get control of your finances.
Be sure that you discuss your unique situation with a bankruptcy attorney to find out how your case might be impacted by the refund and filing.