Does Bankruptcy Affect Your Tax Refund in Arizona?
While we are not sure what it says about the state of savings in this country, we know that one of the most anticipated times of the year for many Americans is the time their tax returns come back.
We are in a situation in the US where not many families are able to put much to the side and are living paycheck-to-paycheck. Getting that tax return can mean a little safety nest gets built in and maybe they can take their kids on a little vacation. There is nothing wrong with that.
However, for those going through bankruptcy proceedings, they could lose enormous amounts of their tax returns if they live in Arizona. Today, we want to discuss this as well as some other bankruptcy basics. Please seek assistance from an Arizona bankruptcy attorney to go over all of your financial options.
Arizona And Tax Returns
We want to bring your attention to this AZ Central article that discusses the fact that Arizona is one of many states that do not protect certain tax refund components like the earned income tax credit and the child tax credit. In this state, you can lose those credits due to bankruptcy proceedings, car accidents, and other judgments against you.
This is a big deal for many people.
The story discusses Sean and Tyler Rose Haley from Casa Grande. When they filed for bankruptcy, they had no idea that they would lose their tax refund. They say that they got too deep in debt and a vehicle loan and suffered an income drop. Losing their tax refund made it hard for them to even begin to set up an emergency fund.
For people who are already in dire financial straits, Arizona law seems backward. As Sean Haley said, “When (the credits) are taken away and you’re already in a financial bind, it makes it that much more difficult.”
The earned income tax credit (EITC) is a government credit that aims to help low- and moderate-income workers and varied based on whether a person has kids. The child tax credit is worth up to $2,000 per child.
Let’s put this into perspective – a lack of protections in Arizona could hurt people filing for bankruptcy by keeping them from receiving tax credits that are there to help lower-income individuals.
Does anyone else see anything wrong with this?
What Bankruptcy Can Do
Despite the possibility of losing all or most of your tax refund, it still may be in your best interest to file for bankruptcy. For individuals, Chapter 7 and Chapter 13 are the main two options. Which one you can file for will depend on the results of a means test.
For those without a steady income, Chapter 7 may be the best option. This type of bankruptcy can eliminate much of your debt while allowing you to keep exempt property like your home, vehicle, and other assets.
Chapter 13 bankruptcy will be the option for people who make too much money to qualify for Chapter 7. This type of bankruptcy allows a person’s debts to be consolidated through the bankruptcy court and for them to be repaid (at amounts usually much lower than the original debt was for) over a period of three to five years.
Let An Attorney Help You Through This
Please do not think you are alone in a bankruptcy process. We know that this is a tough time for you, but please speak with an Arizona bankruptcy attorney before making any decisions. An attorney can discuss the risks and benefits associated with filing for Chapter 7, Chapter 13, or not filing at all.
Click here for information on bankruptcy and self employment in Arizona.