By Kelly M. Resnick, Resnick Law Offices, Bay Area
This is a common question this time of year (tax season) from clients needing to file bankruptcy. Depending on how much refund you receive, it may not impact your case at all. However, if you have a lot of other assets and this amount would not be protected in your bank account if you filed your case, you want to be strategic about how you spend this money.
The best, and most common, use in this scenario is to pay your bankruptcy attorney fees with the refund. This will help you move forward with your case and provide you relief from your creditors and debts sooner!
There are many other ways to spend down funds within the confines of the Bankruptcy Code, and I plan to address those in a future post. However, there is one thing that is the ABSOLUTE WORST thing you could do with this money, and that is: repay debts to friends and/or family members.
The court and the U.S. Trustee know that you’re human, and that you would much rather pay off mom, brother, aunt, and/or best friend before you pay your Visa bill. Therefore, when you choose to pay an “insider” within the year prior to your filing, this is what is called a “preference payment.” The Trustee has the right to contact your friend or family member directly and demand that the amount you paid to him/her be given back to the Trustee. This generally results in a bigger issue between you and your friend/family member than delaying repayment until after your case is finished (because you can pay them back then!).
Many clients say “but how will anyone know?” There is a specific question on your bankruptcy documents that you sign under penalty of perjury that asks whether you have made such a payment. And again, many clients ask “but how will anyone know if I just leave it off my paperwork?” First, if you say this to any attorney and they agree to leave it off your paperwork, RUN! You must tell the truth 100% throughout your entire case. Second, ask any Debtor found guilty of bankruptcy fraud that question and they will verify how the U.S. Trustee has ways of finding information. Your ultimate goal when filing bankruptcy is to have your case pass through without issue. There are always issues when you pay friends/family and/or fail to disclose these payments. Don’t put your fresh start in jeopardy, and contact an honest, reputable attorney to discuss your options!
If you anticipate a tax refund this year and need advice on how to best utilize these funds, call Resnick Law Offices for a free consultation today! 510-860-3688
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