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What happens to my tax refund when I file for a Chapter 7 bankruptcy?

In Arizona, any tax refund due to you becomes property of the bankruptcy estate the moment the bankruptcy is filed. If you receive a tax refund prior to filing, you should spend it before the case is filed. Use the refund for medical or dental care, car repairs, house repairs or for attorney fees. Spending your refund for these types of services and merchandise is beneficial for you.

If you previously borrowed money from a family member and you want to repay them, do not use your refund check for that purpose. Paying back a family member without paying other creditors gives the family member a “preference” over other creditors. In such a case, the case trustee has the duty to retrieve the Preference payment from your family member for the benefit of all creditors. The case trustee may even sue your family member for return of the preference payment.

If you find yourself facing this or any other bankruptcy related problem, immediately seek the advice of an experienced bankruptcy attorney. Zeigler Law Group offers the experience and ability to assist you with any bankruptcy related issue.