What NOT to do with your Tax Refundby Katheryn E. Hancock, Attorney on 01/18/14
Tax season is almost here. For many low-income people it is the one time of year they have a large sum of money at their disposal. So what does a tax refund have to do with bankruptcy? In bankruptcy there is a concept called a preference payment. This occurs when you favor certain creditors by paying them more money than others. Bankruptcy trustees especially scrutinize any payments made to insiders (friends or family members). If you pay a friend or family member within a year of filing your case, it must be disclosed on the bankruptcy petition. The bankruptcy trustee would then have the right to go after that money so he or she can evenly distribute it among all of your creditors. I know it is tempting to pay back friends and family that you owe money to with your tax refund or right before you file bankruptcy, but it is a very bad idea to do so. If you are even remotely considering bankruptcy, don't do it.