Upon filing for Chapter 7 bankruptcy, you must disclose all the assets you currently possess to incorporate into your bankruptcy estate. With this, you may wonder whether your bankruptcy trustee can gain access to your declared earned income credit and use these funds to pay off your due creditors. This may be particularly concerning for you if you rely on these funds as one of your significant sources of income. Follow along to find out whether your earned income credit may be taken away and how a proficient Louisville, Kentucky Chapter 7 bankruptcy lawyer at Schwartz Bankruptcy Law Center can help you protect it at all costs.

How do I know if I qualify for earned income credit in the first place?

You must understand that there is a difference between a tax refund and an earned income tax credit, and it is more difficult to qualify for the latter. For one, a tax refund is a repayment of your earnings if too much tax was taken from your paychecks in the prior year. On the other hand, an earned income tax credit is a refundable tax credit for low- to moderate-income working individuals and couples, usually with children. Without further ado, as of 2024, the basic qualifications for this tax credit are as follows:

  • You must have worked and earned an income of $63,398 or less.
  • You must have earned an income income of $11,000 or less in the 2023 tax year.
  • You must have had a valid Social Security number by the 2023 tax return due date.
  • You must have been a valid United States citizen for the entire year.
  • You must have not filed Form 2555, Foreign Earned Income.

Can my earned income credit be taken away in a Chapter 7 bankruptcy?

With your Chapter 7 bankruptcy comes the opportunity for exemptions. Essentially, exemptions are laws that may protect certain assets during your bankruptcy proceedings. In other words, exempt assets cannot and will not be taken by your bankruptcy trustee in an attempt to pay off your due creditors.

With that being said, you may be eligible to get your earned income credit exempt in your Chapter 7 bankruptcy by petitioning for the state wildcard exemption. That is, in Kentucky, you may be able to protect up to $1,000 worth of your real or personal property (i.e., $1,000 worth of this income credit).

Or, if you opt for the federal wildcard exemption, you may protect up to $500 worth of your earned income credit. But if you did not use the federal homestead exemption, your wildcard exemption may be up to $12,575. Of note, you have to pick and choose between the state or federal exemption.

In conclusion, if you are unsure of your next move, resort to a talented Louisville, Kentucky consumer bankruptcy lawyer. Someone at Schwartz Bankruptcy Law Center will know the legal option that works in your best interest. So call our firm today.