Norfolk, VA asked in Bankruptcy for Virginia

Q: I filed for Chapter 7 bankruptcy, would the return I receive from the American Opportunity Credit be protected?

I filed my Chapter 7 bankruptcy in 2023 but the trustee said he would let me know how much or my taxes he will take to pay creditors once I completed my taxes. I have recently filed my 2023 taxes and I was wondering what part of my taxes is automatically protected? Will the amount I received from the American Opportunity Credit not be considered by the trustee since it was not earned income?

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2 Lawyer Answers
James L. Arrasmith
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  • Bankruptcy Lawyer
  • Sacramento, CA

A: The protection of your tax return, including the American Opportunity Credit, in a Chapter 7 bankruptcy depends on various factors and the specific laws in your jurisdiction. Typically, tax refunds, including credits like the American Opportunity Credit, may be considered part of your bankruptcy estate if they were earned or accrued before you filed for bankruptcy.

However, whether the trustee can access these funds for creditors depends on your individual circumstances and the applicable bankruptcy exemptions. In some cases, certain exemptions can protect a portion or all of your tax refund. The exact amount protected can vary based on state and federal bankruptcy laws.

It's essential to discuss your specific situation with your bankruptcy attorney. They will review your case, including your tax return, and provide guidance on how best to protect your assets and navigate the bankruptcy process. Your attorney can help you understand how your tax refund and credits may be treated in your Chapter 7 bankruptcy and help you take the necessary steps to protect your financial interests.

Seth E Allen
Seth E Allen
  • Bankruptcy Lawyer
  • Bristol, VA
  • Licensed in Virginia

A: Your tax return is something that should have been listed as an asset in your schedules and should also be protected in Schedule C. In Virginia, child tax credits and the Earned Income Tax credit are automatically protected if listed properly using the proper exemption. Any remaining portion of the return should have been protected using the general homestead exemption. As a Virginian, this amount is up to $5,000, plus an addition $500 per dependent. If you are over 65, the amount increases to $10,000. This amount can be exhausted, but is replenished after 8 years. If this wasn't properly listed and protected, you should reach out to your bankruptcy attorney to see if it can be amended.

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