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The Best Time of Year to File Bankruptcy?

by Adam Mack, J.D.

Interestingly enough, bankruptcy law is somewhat of a seasonal practice.  Several factors result in a disproportionate number of bankruptcies being filed in the spring, in particular chapter 7 filings.  This is for several reasons, but in my experience, the most common reason is because that is when people are receiving their tax refunds and can afford to resolve the important legal matters that are addressed by a bankruptcy.

However, another significant factor is that when you file a chapter 7 bankruptcy, upon receiving your tax refund for the year you filed, you will have to give up a portion of that tax refund to the bankruptcy trustee.  The money is used to offset the loss to those debtors who will be discharged in the bankruptcy and to assist in funding the trustee’s office.  The amount you will have to surrender to the trustee is directly proportional to how late in the year you file.

For example, lets say you file a chapter 7 bankruptcy on the last day of March (on a non-leap year for those who are checking my math), then 24.65753424657534% of the year has passed by.  So if you get tax refunds back from the IRS and the Kansas Department of Revenue with the combined amount of $2500, which is not otherwise exempt, then you would have to 24.65753424657534% of that tax refund to the trustee, an amount totaling $616.44.

Now that I have thrown numbers at you that would make an unsuspecting reader go cross eyed, I will get to the point.  The earlier you can file in the year, the less money you will lose from your tax refund the following year.  If you do not get a refund, or you do not consider the amount you get back from the IRS, KDOR or other taxing entity to be significant, then this may not be a major factor determining when you file.  However, for those that must rely on the their annual tax refund, to lose that refund can be catastrophic.

On the other hand, you want to avoid filing too early in the year as well.  If a the IRS, KDOR or some other taxing entity owes you money and you file the bankruptcy before getting that money, that money is not exempt and will be completely lost to the trustee.  So for many people, the prime time frame to file is after their tax refunds come in from the prior year(s) and the money spent, but then as soon as possible after that.

All this said, there are many different factors that will determine when the best time to file is for you.  Tax refunds are only one consideration out of many that should be examined when trying to determine the right time to file.  Do not make such a decision without first consulting with a Kansas bankruptcy lawyer.


These articles are for general informational use and do not constitute legal advice. Since laws change over time, it’s possible some articles are out of date and for that reason, we make no representation that the articles are fully accurate. For actual, up-to-date legal advice (including a free consultation), please contact us!