My buddy has $7,000 in a tax return coming to him. He says he owes over $40,000 in credit cards and will be filing a Chapter 7 because he has been unable to find work for some time. Is there a way he can invest/protect this $7,000 so it isn't taken? He said he wants to put it in something like edvest(?) or another thing for his kids college, can he do that or is there something else he can do to protect the return?
For the responders, Yes, I have told him NOT to file but to try to work it out with creditors instead.
2007-12-27 08:51:26 · 9 answers · asked by Isaiah 2 in Business & Finance ➔ Personal Finance
First, NO ONE should EVER get a $7000 refund. That means he had $135 TOO MUCH withheld EVERY WEEK. If he adjusted his withholding to a more reasonable amount, he would probably be able to make the payments on the cards.
Second, he will NEVER even SEE the $7000. The bankruptcy court will file with the Treasury Offset Program and the check will go directly to the bankruptcy trustee.
2007-12-27 10:43:41 · answer #1 · answered by STEVEN F 7 · 1⤊ 0⤋
How can he know what his tax return will be? The tax forms haven't even come out yet, much less his information been sent to him by his employer, banks and investment companies. So he really doesn't have the money yet.
If he files a chapter 7 he'll still have to pay back what he owes but they'll stop the interest mounting.
2007-12-27 09:16:51 · answer #2 · answered by Anonymous · 0⤊ 0⤋
Well, right off the bat he can protect $3000 in an IRA. Actualy, he could protect $6000 in an IRA if he put in $3000 before the end of this year and then another $3000 after the first of the yar. Beyond that there is also a personal exemption for cash but he will have to consult the laws of his domicile state. An attorney handling a bankruptcy will be able to provide more specific information. If he did the things mentioned though he would probably be able to protect the entire refund. The key being able to put $3000 in before the end of this year. Might be difficult though if he is in a position of considering bankruptcy.
2007-12-27 09:03:10 · answer #3 · answered by wmwiv 4 · 0⤊ 2⤋
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2016-10-09 06:23:54 · answer #4 · answered by ? 3 · 0⤊ 0⤋
Unfortunately, your friend is likely not going to be able to keep his tax return, not really because the bankruptcy court will seize it, but because of IRS rules relating to debt write-off.
The problem, you see, is that whatever "forgiven debt" value the bankruptcy court writes off counts as earned income according to the IRS...income that he will have to pay taxes on, even though he never received any money.
So for example, if the court writes off $50,000 in debt for your friend, based on liquidation of his assets, that would put him around the 20% tax bracket and he would still be responsible for paying all applicable taxes as if he'd earned that $50,000...and the next IRS statement he got would show that he would owe $10,000 in taxes, even though he never received any money...and that's just the federal part...depending on state law, he may owe even more for state taxes.
There are, of course, exceptions to the rule, but he would probably need to spend more going through the red tape to exempt himself than it would to simply pay the tax amount.
So as unfortunate as it is, your friend should not count on putting his tax refund away. He will need it to pay tax on the debt write-off.
2007-12-27 09:17:32 · answer #5 · answered by Vangorn2000 6 · 0⤊ 1⤋
nope, that's one of the stipulations in a bankruptcy, the trustee is gonna get the refund and disperse it to the creditors.
2007-12-27 08:59:41 · answer #6 · answered by randy 7 · 1⤊ 0⤋
You mean "refund" not "return"....what he files is his "return"...
It is unlikely he will be able to file for bankruptcy, since he is not bankrupt.
2007-12-27 09:00:30 · answer #7 · answered by Anonymous · 0⤊ 0⤋
Most likely, he won't get to get keep it. Depending on his situation, he might be able to keep a small part of it, but he can't protect it.
2007-12-27 09:40:28 · answer #8 · answered by Stefanie B 4 · 1⤊ 0⤋
then he should file bankrupcy now and not do his taxes until April 15th
2007-12-27 08:55:23 · answer #9 · answered by Anonymous · 0⤊ 0⤋