Tax season can offer some relief, especially if you have been struggling with your family’s finances lately. Receiving the refund check can feel like a lifeline, but you might be wondering if filing for bankruptcy can affect this. Fortunately, you have options for protecting those funds.
Defining exemptions under Oregon law
In Oregon, tax refunds are considered money in your bank. They generally remain unprotected unless they fall into specific categories:
- Earned Income Credit (EIC): If you receive federal or state EIC, it is 100% exempt from bankruptcy.
- Wildcard exemption: If you file a wildcard exemption for any personal property while married, you can protect up to $800.
Spending down your refund the right way
If your refund is larger than the legal exemption, you can spend the money on necessary living expenses before filing for bankruptcy. These include:
- Household essentials
- Ongoing medical expenses for your children
- Rent or mortgage payments
- Necessary car costs
When spending down, avoid luxury purchases or paying back a loan to a family member. A bankruptcy trustee may see these as preferential payments and sue the family member to get the money back.
Why timing matters in protecting your tax refund
The timing of filing for bankruptcy can make a difference in the status of your tax refund. Finalizing your decision before receiving the refund may cause the trustee to intercept the check. If you file after getting the check and placing it in your bank account, you might be at risk of commingling funds with non-exempt money.
If you are unsure what to do, seeking legal advice from a bankruptcy law attorney is the best course of action.
