At the beginning of the new year, many people implement new habits to improve their lifestyles. This could be a new fitness routine, sticking to a diet, starting therapy, or taking control of their finances. But if debt is unmanageable, creating a budget and spending less won’t be enough to fend off creditors and avoid negative repercussions. Depending on the debtor’s circumstances, bankruptcy is a tool that might be able to help. It can stop lawsuits and other collection efforts by creditors and wipe away debts so that the debtor can have a fresh start.

Now that 2024 is here, more and more people are considering bankruptcy. A savvy bankruptcy debtor will make sure to time their filing in a way that doesn’t interfere with their tax refund. This may mean spending a tax refund in an unusual but reasonable manner. Read on to learn more about reasonable expenditures while preparing for bankruptcy. If you’re considering taking advantage of all that bankruptcy has to offer in Phoenix, Arizona, call our firm for your free consultation at 602-609-7000

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Why Should I Spend My Tax Refund Before Bankruptcy?

When you file for bankruptcy, almost everything you own is at risk of being taken by your bankruptcy trustee. Assets that aren’t protected by bankruptcy exemptions can be seized and sold at auction. Trustees distribute these sales proceeds among creditors and keep a portion for themselves. Arizona doesn’t have exemptions to cover every category of asset that a debtor might own. One of these is the debtor’s tax refund. 

A Chapter 13 bankruptcy lasts 3 or 5 years. A debtor in a Chapter 13 bankruptcy can expect their trustee to take their tax refund each of those years. Chapter 7 bankruptcy is much faster and will typically be completed within 3 to 6 months. The trustee can potentially seize the debtor’s refund received that year. But if you wait to file until after receiving your tax refund, you can spend it on reasonable expenditures so it isn’t taken by your bankruptcy trustee. To learn more about how your tax refund, as well as other payments, can be affected by filing for bankruptcy in Phoenix, Arizona, call 602-609-7000 for your free consultation with our firm. 

Reasonable Expenses

Vehicle Maintenance & Repairs

If you or your family members drive a decent amount, your vehicle probably needs an oil change, new tires, etc., fairly regularly. There may also be repairs and maintenance that your vehicle could use that are out of the ordinary. If this work relates to the car’s condition and operation, rather than its cosmetic appearance, it is a reasonable expense on which to use your tax refund before bankruptcy. For example, getting new rims for your wheels would be considered an unreasonable expense. If you are unsure about whether your vehicle repair might be considered unreasonable by your bankruptcy trustee, call to speak with one of our lawyers today at 602-609-7000

Medical & Dental Treatments

Even with health insurance coverage, medical and dental care can be outrageously expensive. Therefore, some medical and dental procedures receive higher priority than others. If you have been putting off a less urgent procedure, now could be the time to take care of it. Medical and dental procedures are generally considered reasonable. Keep in mind that plastic surgery and other cosmetic procedures likely won’t be considered reasonable if reviewed by a bankruptcy trustee. To discuss any questions or concerns you have, call 602-609-7000 for your free bankruptcy consultation. 

Food & Provisions

A.R.S. § 33-1124 protects six months’ worth of a household’s food, fuel, and provisions in bankruptcy. This can be a great way to spend your tax refund before bankruptcy, especially if the amount you have to spend isn’t high enough for more expensive things like vehicle repairs or medical treatments. You can take this opportunity to stock up on non-perishable food items and other items for around the house like paper towels, toilet paper, laundry detergent, cleaning supplies, etc. There is flexibility for this type of purchase since the exemption protects six months’ worth of supplies instead of a specific dollar amount. 

School Supplies & Other Items For Your Children

Many purchases made on behalf of your children are considered reasonable expenses in a bankruptcy context. These items can also fall under multiple types of bankruptcy exemptions for protection. As long as you don’t want to purchase expensive designer goods, your trustee probably won’t raise issues about pre-bankruptcy purchases for your children and their schooling. 

Bankruptcy Attorney’s Fees

It may seem contrary to common sense to spend money on Arizona bankruptcy lawyers when not having enough money to pay the bills is usually the reason for filing a bankruptcy petition in the first place. But if you have a chunk of change from your tax refund that needs to be spent before bankruptcy, spending it on quality representation to make sure your bankruptcy is executed properly is considered reasonable. 

If you would rather spend your tax refund on one of the expenses described above or another cost relevant to your situation, you may have options available. At My AZ Lawyers, many of our Chapter 7 bankruptcy clients qualify to file using our Zero Down payment plan option. While other bankruptcy attorneys may require your balance to be paid in full before your case can be filed and you can reap the full protections of bankruptcy, this option allows you to pay for your fees in affordable installments after filing. To learn more and to see if you qualify, call 602-609-7000 to schedule your free phone consultation with our Phoenix bankruptcy team

Other Tips For Pre-Bankruptcy Spending

There are certain best practices you can observe when spending, especially spending a tax refund, in the timeframe leading up to filing for bankruptcy. They include:

-Don’t purchase gift cards: It would be more convenient to purchase yourself a Target or Walmart gift card rather than stocking up on six months’ worth of supplies. However, gift cards are considered the same as cash in a bankruptcy filing. They could be at risk of seizure by your trustee, so it’s better to buy products and apply exemptions to them instead. 

-Keep receipts: Receipts provide more details than a credit card statement or charges on a bank account. The trustee likely won’t question you over small purchases, but hold onto receipts from relatively larger purchases. 

-Keep cash withdrawals to a minimum: The problem here is that the trustee may suspect that you still have cash from ATM withdrawals that show up on your bank statements. Don’t throw away receipts from purchases made with cash withdrawn from your account. 

-Avoid luxury purchases: Luxury purchases can draw suspicion from your trustee and could be excluded from discharge if made on credit cards. Keep your purchases before bankruptcy reasonable so that there is no question. 

Learn More About Your Options From Our Experienced Phoenix Bankruptcy Lawyers

The right legal counsel can make all the difference in any legal matter, including bankruptcy. There are certain laws and requirements that apply in Arizona that may not be of issue in other jurisdictions. Arizona Zero Down Bankruptcy Lawyers are experienced in Arizona bankruptcy issues from our cumulative years of representing clients across Phoenix. To learn more about our firm and to receive a quote for legal representation, contact us or call 602-609-7000

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