So I filed Chapter 7 bankruptcy in 2009 and I just did my taxes and I have a refund of over $6000 but I think I remember hearing/ reading that they take your refund and give it to your creditors. Is that true? We had a really poor year in 2009 so most of it is earned income/ child credits and only about $800 is overpayment of what we should have paid.
Contrary to commonly held misconception, chapter 7 doesn’t allow you to walk away debt-free without any payment at all. Any and all assets in excess of whatever is excluded by law is taken by the trustee and is divided up proportionally among your unsecured creditors. You’re allowed to keep a certain amount of equity in your home (varies from state to state and whether you file Federal or State rules) as well as one motor vehicle per licensed driver in the home, your clothing and the tools of your trade and most of your household furnishings and sufficient cash to meet current living costs. The court will decide how much of any tax refund you will be allowed to keep. Anything above that amount will be turned over to the trustee to be applied against what you owe.
