Tax Refunds in a Colorado Chapter 7 Bankruptcy
Recently, the 2020 deadline for filing 2019 taxes was extended in reaction to COVID-19. The tax deadline is now July 15, 2020. While it’s nice to have some extra time to file, if a debtor is expecting a refund, it is still in his or her best interest to file taxes as soon as possible in order to expedite the receipt of the refund prior to filing for bankruptcy. If filing electronically, it typically takes about 3 weeks to receive a refund.
In Colorado, a bankruptcy trustee has the authority to collect a tax refund that hasn’t been spent prior to filing a bankruptcy claim. If a debtor files for bankruptcy in June, the trustee is entitled to collect half of the tax refund due for that year. If a debtor files for bankruptcy in December, the trustee is entitled to collect the full tax refund for that year. In some cases, it’s in the debtor’s best interest to file for bankruptcy in the spring after the tax refund was received and spent. The refund can be used to pay for the bankruptcy attorney’s fee, car repairs or groceries for example, but it probably should not be spent on luxury items or lavish trips. By talking to an experienced Colorado bankruptcy attorney, a bankruptcy filer might be able to save thousands of dollars based on this type of bankruptcy planning alone.