Now that I’ve filed bankruptcy, how many years will the trustee take my tax refund?

Hopefully just the next one (in a Chapter 7).

You will normally only lose one tax refund to the bk trustee, and if you do it right, then you won’t lose any refund money at all.  

When we file bankruptcy, the Chapter 7 trustee has a duty to take your non-exempt assets (unprotected assets) like your unspent tax refund, and then he uses that to pay a small portion to your creditors.  If we time the bankruptcy correctly, you will file, receive, and then spend your tax refund before we file the actual chapter 7.  At that point, there is no refund to lose.

Then the bk trustee gets to do a little guesswork to see if next year’s tax refund is worth going after.  He is entitled to a portion of your next refund, depending on when you filed bk.  Let’s say you filed on April 1, well he can go after January/February/March’s portion of next year’s refund, or about 1/4th.  If you file on July 1st, he can go after 1/2 of next year’s refund, October 1st 3/4th of the refund, etc.  Generally, the bk trustee won’t keep a case open long enough to take next year’s refund unless it looks like he will receive at least $2,000 to pay out to creditors.

So, if you’re someone who gets a $12,000 refund each year, then he will keep the case open almost a year to see if he can hit that $2,000 threshhold.  If your refund is small each year ($3,000 or less), then it’s generally not worth his time.

So normally, you are only in danger of losing this upcoming refund, which is why you want to file and spend that refund money before you file bk.

The bk trustee will NOT keep your case open year after year in order to go after your tax refund (at least in a Chapter 7).

In a Chapter 13, it’s a little different.  Here in Utah, if your income is below median, you’ll turn over part of your tax refund for the next 3 years of your case.  If your income is above median, then you’ll turn over part of your tax refund for the next 5 years.  The portion amount, above median/below median numbers, and the calculations are a little complicated, so I’ll save that for another day.