Receiving large tax refund to spend before filing chapter 7. Can I buy furniture?

Asked 5 months ago - Lebanon, IN

I know the normal things such as medical bill, food, clothes, attorney fees etc. but what else? Can I put a lump sum in retirement account or pay more than 1 car payment?

Attorney answers (6)

  1. Robert Charles Russell

    Pro

    Contributor Level 13

    7

    Lawyers agree

    Answered . Generally, you can spend money on things your really need. If you buy a $4K leather couch/sofa, that might create an issue. But, replacing old items with reasonable items is, generally, not a problem.

    Secondly, FYI, you might not have to spend the cash before filing - it might be exempt. So, if I were you, I'd take to an atty and find out. It might be safer to spend it after bankruptcy. Good luck!

    Please remember to mark my answer as "helpful" or even the "best" if that is the case. My response is general... more
  2. Blake Owen Brewer

    Contributor Level 18

    4

    Lawyers agree

    Answered . You are probably safe but review this with your attorney prior to filing. Furniture sounds reasonable but there are things that you can do which will cause complications. Your attorney has seen all this before if they have filed more than one or two bankruptcy petitions. Or use the refund to hire an attorney that is a perfectly legitimate use of the refund money.

    I am not your attorney unless you and I have signed a retainer agreement. What I am saying is not legal advice.... more
  3. Sandra A Kuhn Esq.

    Pro

    Contributor Level 17

    3

    Lawyers agree

    Answered . I agree with the other answers. But there is a difference between buying a $5K couch and a $500.00 couch. Be sure to communicate with your attorney and if you do not have one, it would be a good idea to get one.

  4. Ted A Troutman

    Pro

    Contributor Level 12

    1

    Lawyer agrees

    Answered . You should talk to an attorney in your area immediately. Depending on IN exemptions you may not need to spend the refund. If you spend it on needed furniture the furniture may be exempt but you need to talk to a local attorney. If you haven't previously invested your tax refund in an IRA doing so right before filing could be considered bad faith., if the money isn't otherwise exempt.

    The answer above is for general information purposes only. You should talk to an attorney to determine your... more
  5. Dorothy G Bunce

    Pro

    Contributor Level 20

    1

    Lawyer agrees

    Answered . Although everyone has mentioned checking with an attorney to find out about the exemptions, no one has provided information about the exemptions, so I am posting a link below so you can see for yourself. Do not just assume that because you buy something that is exempt that you will be protected. Use the refund money on your bankruptcy attorney's fees. Local practice can vary widely & an attorney that knows the trustees will be an important investment.

  6. Richard Glenn Elie

    Contributor Level 18

    Answered . My experience is that in the last 5 years or so bankruptcy trustees have routinely gone after income tax refunds, principally because they are the low-hanging fruit. They next pursue cars or any other asset they perceive to have more than just modest or exempt value.

    If you file before your refund arrives, and it is not exempt, the trustee will bring a turnover motion to have you pay over the refund, or if you spent it, repay the trustee or surcharge your exempt assets to whatever amount that the refund was.

    You should hire a bankruptcy lawyer with experience in your area. If your refund falls within a wildcard exemption, then you probably could spend it and its not an issue.

    One thing the trustees do look for is the sudden sale or sudden purchase of expensive items. What's expensive to a trustee may not be to you, and so there will be issues there.

    Most people can safely wait to receive their refund and then spend it on ordinary expenses. When its spent, then you file and that's it.

    Please remember that no one can advise you here who does not know all of the facts. That is why you hire a local attorney and disclose everything before filing.

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