Skip to content

What You Need to Know About Ohio Tax Returns & Bankruptcy

Published February 24, 2021 by Amourgis & Associates
What Happens to Your Tax Return in Bankruptcy?

Bankruptcy proceedings can get complicated under the best of circumstances. Figuring out your taxes in the midst of filing for bankruptcy adds yet another layer of complexity to your case. In some situations, you might not be able to keep your tax return. This can place additional financial pressure on you during an already challenging time.

The Ohio bankruptcy lawyers at Amourgis & Associates, Attorneys at Law are here to answer any questions you have about how bankruptcy and taxes affect each other. With six locations throughout Ohio, we can meet you wherever you are and help you emerge from bankruptcy with a more stable and secure financial future. We’re well-regarded by the Ohio legal community and have received many honors for our work, including an A+ rating from the Better Business Bureau.

Want to know more about how we can help with your bankruptcy case? Call one of our offices today or visit our contact page to get a free case review.

Does Filing for Bankruptcy Affect Your Tax Return?

One reason bankruptcy cases tend to be complex is that there are many different ways to file for bankruptcy. The Bankruptcy Code is divided into different chapters, and which chapter you use for your case will depend on your individual circumstances.

Here’s how filing for bankruptcy affects tax returns under the three most commonly used chapters of the Bankruptcy Code:

Chapter 7

Chapter 7 of the Bankruptcy Code is used by individuals, not businesses, who intend to sell off non-exempt assets to pay back their creditors. Whether or not you get to keep your tax return depends on when you filed for bankruptcy, when you filed your taxes, and other factors.

If you receive a tax refund based on income earned from the tax year before you filed for bankruptcy, that money is considered part of your bankruptcy estate, meaning it will go toward paying back your creditors. If you get a tax return based on income earned the tax year after you filed for bankruptcy, you get to keep the full refund. If you received a tax return for the year you filed for bankruptcy, the portion of the refund based on income received before filing for bankruptcy goes to your estate, meaning you can’t keep it. However, you can keep any portion of the refund based on income received after filing for bankruptcy.

The Earned Income Tax Credit and the Additional Child Tax Credit portion of your tax return are exempt from bankruptcy in Ohio.

Chapter 13

A Chapter 13 bankruptcy case works a little bit differently because it’s a reorganization bankruptcy instead of a liquidation.

In a Chapter 13 bankruptcy, you get a chance to pay back your creditors over a period of three to five years if you can come up with a repayment plan that your creditors and the bankruptcy court agree to. However, Chapter 13 bankruptcy repayment plans generally require individuals to contribute all of their disposable income to pay back their creditors, including income received from tax returns.

Even if your bankruptcy plan does not pay 100 percent of your disposable income to your creditors, your bankruptcy trustee may be able to keep your tax refund. You may be able to keep your return by using a wildcard tax exemption or by using it to pay for necessary expenses. Otherwise, you will most likely be unable to keep your refund.

Chapter 11

Chapter 11 bankruptcy cases are similar to Chapter 13 bankruptcies because they’re both reorganization cases instead of liquidations. Therefore, many of the same rules regarding income from tax returns apply.

Unless you are allowed to use an exemption to protect your tax refund, or you spend the money from the tax refund on certain necessary expenses, you will generally not be able to keep your tax refund if you have filed for Chapter 11 bankruptcy.

Should I File for Bankruptcy Before or After Filing Taxes?

Generally speaking, it’s a good idea to file your taxes and get your refund before filing for bankruptcy. There are a few reasons for this.

First and foremost, you’ll minimize any chance of issues with your tax filing. Guidelines from the Internal Revenue Service (IRS) state that individuals who have filed for bankruptcy are still required to pay their taxes in a timely manner.

Second, getting your tax refund first gives you more flexibility with how you spend it. It’s very difficult to keep your tax refund once you file for bankruptcy, as that money generally becomes part of the bankruptcy estate. You may be able to spend your tax refund on necessities or to pay your bankruptcy lawyer without running afoul of bankruptcy rules. If you keep the refund in your bank account, it will most likely end up in the hands of your creditors or the bankruptcy trustee.

The main thing someone who files for bankruptcy is trying to avoid when it comes to bankruptcy and tax refund; is receiving a large refund after filing for bankruptcy. If this happens, the money will almost certainly end up going toward paying back your creditors. If you adjust your deductions, however, you can avoid a large refund and get more money in your paychecks. This is something a bankruptcy lawyer can help with.

Can I Keep My Tax Return in Bankruptcy?

Under certain circumstances, you can keep your tax return after filing for bankruptcy. However, it’s not easy. You’ll want to get help from a knowledgeable Ohio bankruptcy attorney to figure out the right solution for your specific needs.

The best way to make the most of your tax refund after filing for bankruptcy is to consult with one of our experienced bankruptcy lawyers. Our Ohio bankruptcy attorneys have spent many years handling these cases, and we can answer any questions you have. We could also structure your bankruptcy case to help you keep as many of your eligible assets as possible. Visit our bankruptcy FAQs for more information.

Learn more about our bankruptcy services by calling our office or visiting our contact page.

Associations & Awards
  • bbb accredited business logo
  • logo
  • ohio state bar association logo
  • super lawyers logo
Six Locations To Meet You