When you file a Chapter 7 personal bankruptcy you can protect your tax refunds from the Bankruptcy Trustee! Many of our Massachusetts bankruptcy clients need to be counseled to fully declare the tax refund on the Petition and Schedules as the Bankruptcy Trustee is absolutely entitled to know about it. The next step is to claim the refund as exempt. Of course, the exemption is limited, but with proper planning, our clients can generally keep the refund.
What happened if you need to divide the refund with your ex-spouse, who is not filing bankruptcy, but who you filed taxes with? The Massachusetts Supreme Judicial Court, HUNDLEY V. MARSH SJC #10729 under a certification request from the federal First Circuit Court, HUNDLEY V. MARSH 603 F.3D 95 recently ruled that the refund should allocated based on what each debtor would have received it s/he had filed separately rather than jointly. This analysis was undertaken by our colleague and esteemed bankruptcy attorney, Richard Olson, of Perkins Olson in Portland, Maine.