Maryland Bankruptcy Law: Can You Keep Your Tax Refund?

When facing financial difficulties, many individuals in Maryland wonder about the implications of bankruptcy on their tax refunds. Understanding Maryland bankruptcy law is crucial for making informed financial decisions, especially regarding assets like tax refunds.

In Maryland, filing for bankruptcy can provide relief from overwhelming debts, but it also raises concerns about what can be kept and what must be surrendered. Under Chapter 7 bankruptcy, which is the most common form, a debtor’s non-exempt assets may be liquidated to pay creditors. This includes tax refunds that could be considered part of the debtor's assets.

However, Maryland law allows certain exemptions that can help protect these funds. Maryland's exemption laws permit individuals to exempt up to $6,000 in personal property. If your tax refund is considered exempt property under this law, you may be able to keep it. Additionally, if you're filing jointly with a spouse, the exemption amount may increase, allowing you to protect a larger portion of your refunds.

It's also important to consider the timing of your bankruptcy filing. If you file your bankruptcy case after you have received your tax refund, you won't have to worry about losing it, as the refund is no longer an asset of the bankruptcy estate. However, if you file before receiving your refund, the refund may be included in the bankruptcy case unless you can claim exemptions.

Another aspect to consider is whether the tax refund is a result of the Earned Income Tax Credit (EITC). In some cases, funds received from EITC might be exempt from bankruptcy proceedings under federal and state laws. This can provide an additional layer of protection for filers who rely on these credits.

If you are contemplating bankruptcy and are concerned about your tax refund, it’s advisable to consult with a bankruptcy attorney who specializes in Maryland bankruptcy law. They can provide personalized advice based on your financial situation, guide you through the exemption process, and help you determine the best course of action to protect your assets.

In conclusion, while Maryland bankruptcy law does present challenges in terms of keeping tax refunds, understanding exemptions and timing can play a crucial role in safeguarding your financial interests. Being well-informed and seeking professional guidance can make a significant difference in navigating the complexities of bankruptcy and protecting your assets.