Tax Season and Bankruptcy
Tax season is just around the corner. Like millions of other Americans, you are likely gathering your W2s, 1099s, and other important tax documents as you get ready to file. If you’re in a substantial amount of debt, this time of year may give you mixed feelings—it’s hard to get a large chunk of money, knowing that it will all go to debt that you are afraid of never paying off.
You have options when debt has taken over your life. Learn more now by calling Padgett & Robertson at 800-303-1416.
Paying Down Debt with Your Tax Refund
Many people see tax time as a great chance to tackle their debt and start putting a big dent in it. That isn’t always the way to go, though. If you have a solid debt repayment plan and an end in sight, your tax refund could be an effective tool in your payoff strategy.
But what if you don’t have a debt repayment plan? What if you have so much debt that you can’t even imagine a future in which you’ll ever be able to pay it off? What if you’re drowning just making minimum payments every month, and a one-time payment won’t make a difference?
If that’s the case for you, using your tax refund to pay down debt could just be throwing good money after bad.
Consider Other Options
That doesn’t mean that you should go blow your tax refund or plan your dream vacation. Instead, it’s time to think about your approach to your debt. If you’re truly in so deep that repayment seems impossible, it may be time to think about Chapter 7 or Chapter 13 bankruptcy.
Bankruptcy can wipe your roster clean and give you a fresh financial start. If you choose to go this route, you can use your tax refund for other purposes that can help you and your family, such as putting aside an emergency fund.
Worried About Losing Your Refund?
Many people who get sizable refunds each year worry about filing for bankruptcy. Most people know that your bankruptcy trustee can seize your assets and use their proceeds to pay back your creditors in part or in full. This does apply to your tax refund, but that doesn’t mean you’ll automatically lose your tax refund.
First, a good chunk of your tax refund will likely go toward paying the costs associated with your bankruptcy. That means that only part of your refund is at stake. Second, don’t forget that Alabama has many types of exemptions you can use to protect your property from being seized.
For example, Alabama has an $8,225 wildcard exemption that you can use to protect any property outside of your wages and salary. You can use that exemption to save some or all of your tax refund.
Even if you do lose some of your refund in bankruptcy, consider the alternative. What good does it do to keep your refund if you have tens of thousands of dollars in unpaid debt looming over your shoulder every day? Losing part of a tax refund may be a small sacrifice to make for a fresh start.
A Bankruptcy Attorney Can Help
There’s a lot to consider as you prepare to file your taxes. If you’re still wavering between continuing to pay down your debt and filing for bankruptcy, it’s a good time to talk to a bankruptcy lawyer in Alabama. With the help of your attorney, you can take a thorough look at your assets, debts, and income.
You’ll use that information to see if you qualify for bankruptcy and if you have any other reasonable options for paying off your debt. It might be hard to look your debt in the face and find out what your next steps should be, but it is key if you want a new financial start.
Reach Out to Padgett & Robertson Now
At Padgett & Robertson, we know that all types of situations and tragedies can lead you to bankruptcy. Regardless of what has brought you here, we want to help. Set up a time to talk to our team now and find out if bankruptcy is the right choice for you. Call us at 800-303-1416 or send us a message online to schedule a consultation.
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