In the first few months of any given tax year, families across Washington eagerly wait for their tax refund checks to come back in the mail. For many Washington families, the whole refund process is really used as a savings device to get the money together to cover large out of pocket expenses that cannot be satisfied out of a bi-weekly paycheck. Fortunately, Washington consumers who wish to keep their refund checks while filing bankruptcy can usually accomplish these twin aims without risking the loss of a dime to their Chapter 7 Bankruptcy Trustee. This is so because so long as a prospective bankruptcy filer has lived in the state of Washington for over two years, she is eligible to choose either the Washington or federal bankruptcy exemptions to protect a potential tax refund.
Under the federal exemptions, you are currently allowed $1,150 plus $10,825 of any unused portion of your homestead exemption to exempt any type of property you wish to keep. Since few people in Washington have any equity in their homes, there is almost always a large amount of personal property, including a large refund, that can be protected under the federal exemptions. The only bad news is that not every bankruptcy filer in Washington is eligible to use the federal exemptions.
If you have lived in Washington for the last two years, you can use the federal exemptions, but if you have lived in Washington for less than two years you may not be able to do so. If you have lived in Washington and one other state during the last two years, you will (in most cases) be forced to use the exemptions of whichever state you lived in for the majority of the period between 24 and 30 months ago.
If you live in Washington and need help determining whether you can use the federal exemptions to protect your potential tax refund or want to just discuss strategies for holding onto both this one and the next one, call our Vancouver or Seattle offices to make an appointment or, better yet, set up a phone consultation on the appointment calendar on this website.