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Navigating Tax Refunds and EITC in Kansas Bankruptcy

Understanding Your Rights in the Federal District of Kansas and the 10th Circuit

Filing for bankruptcy in Kansas, especially within the Federal District and under the 10th Circuit, requires understanding unique considerations. These include how to treat tax refunds and the Earned Income Tax Credit (EITC). Residents contemplating bankruptcy need to know how to protect these assets.

Tax Refunds as Estate Property

Your right to receive a tax refund for the year before your bankruptcy filing becomes part of the estate. This rule also applies to refunds from excessive withholding within the current tax year. However, Kansas residents can often prorate the refund if they earned a significant portion of their income after filing for bankruptcy.

The Impact of COVID-19 Legislation

Recent legislation temporarily excluded “recovery tax rebates” from the estate due to the COVID-19 pandemic. This exclusion does not cover other pandemic-related benefits. It provides relief for many in financial distress during these times.

Joint Returns and Your Tax Refund

Courts in the 10th Circuit vary in dividing a tax refund from a joint return. Some prorate the refund based on each spouse’s income. Others divide it equally or by another formula. For dual-income couples, some courts use a formula that considers individual withholdings and taxes.

Protecting Your Tax Credits

Generally, the estate includes rights to various pre-petition tax credits, including the EITC. Yet, there’s a basis for arguing the EITC should not be part of the estate if bankruptcy occurs before the year ends. This reasoning also applies to the child tax credit.

Maximizing Your Tax Refund in Bankruptcy

Strategic planning is crucial for Kansas individuals considering bankruptcy. Delaying filing until after receiving the refund allows for protected use of these funds. However, consider potential pre-petition claims by the IRS or other creditors.

Protecting Your Rights with Mack & Associates, LLC

At Mack & Associates, LLC, we focus on guiding Kansas residents through bankruptcy. Our approach ensures you know how to handle tax refunds and credits. Visit our website at www.kansasjustice.com for more insights.

For Topeka, KS individuals, understanding bankruptcy’s impact on tax refunds can significantly affect financial recovery. We invite you to seek personalized advice for your situation.