A tax refund disposition is an explanation of what you spent your tax refund on. It is also the trustee’s best way of determining if you misused your tax refund so that he can recover assets for the bankruptcy estate.
When you file bankruptcy, you want to wait until after you have received and spent your tax refund. Otherwise, the bankruptcy trustee will demand that you turn it over so that he may pay your creditors from that refund money. However, you have to be careful on what purchases you make. For example, if you spend $5,000 of your tax refund on a Sankara Stone used in Indiana Jones and the Temple of Doom, then the trustee will take that stone and sell it for the benefit of your creditors, unless Professor Jones recovers it first.
This means that you need be careful on what you purchase with the refund. After filing bankruptcy, the bankruptcy trustee will ask you to give him a disposition or explanation of your purchases. I tell my clients to make a list and save receipts. One client went above and beyond, and received her $7,400 refund, cashed it, and kept receipts of every single purchase, here: best tax refund disposition ever.