When you file your taxes, sometimes you get back some money in the form of an earned income credit. Depending on your income, how many kids you have, and some other factors, this EIC can be quite significant. So if you are filing for bankruptcy, you are probably wondering if you can protect this asset. You might be able to, but what kind of bankruptcy you file and when you begin the process can matter. A Bergen County Chapter 13 bankruptcy lawyer from our firm can tell you more.
Can I Protect My Earned Income Credit in Chapter 7 Bankruptcy?
When you go through Chapter 7 bankruptcy, you are liquidating your assets and using that money to pay off as much debt as you can. A bankruptcy trustee manages your assets and sells off any non-exempt ones to satisfy your creditors. At the end of the process, you have a fresh financial start.
We mention “non-exempt” property for a reason. Many Chapter 7 filers find that they can keep many of their assets, like their home, through exemptions. Does this mean that you can keep your earned income credit? It is possible, but you can lose a part of your EIC if the exemption is not high enough.
You’ll want to talk to a lawyer about which set of exemptions, federal or state, will work best for you in this case. You may also be able to change your withholdings to affect the size of the earned income credit. Finally, it might be an option to use your EIC before filing for bankruptcy. You would just have to use it on necessities though, like utility bills and food.
Can I Protect My Earned Income Credit in Chapter 13 Bankruptcy?
When you file for Chapter 13 bankruptcy, you make a payment plan that lasts for three to five years. Any disposable income you get has to be paid into this plan. Unfortunately, this includes your earned income credit.
You may be able to keep your EIC from the year that you filed, but it can be harder to protect it in the following years. Your tax refund, including your earned income credit, is going to be considered disposable income, so it could go right into your repayment plan.
Do I Need a Lawyer to File For Bankruptcy?
Filing for bankruptcy on your own can be tough. There is a lot of paperwork involved and making any mistakes can result in legal or financial headaches. A lawyer from our firm can guide you through this and help you find the most effective ways to protect an earned income credit and other assets.
Contact Our Legal Team
Don’t try to take on this complicated process all by yourself. Contact the Law Office of Boyd & Squitieri to schedule a consultation with our team. We can tell you more about bankruptcy and help you figure out if it’s the right option for you.
