Trustee Blog

Tax Refund Season and Bankruptcy Marketing

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Welcome to February!

February is a special time of year for bankruptcy trustees and for bankruptcy lawyers. February is when clients receive their w-2’s from their employers.  This little piece of paper shows how much federal and state withholdings they accumulated over the last year. These are the monies that will come back to our clients in the form of tax refunds.

We have discussed in previous posts that a trap for the unwary bankruptcy attorney is to forget to exempt the tax refund. The case is filed in the first part of the year and then the client receives the tax refund in the mail after the case is filed. If the tax refund is not exempted (or protected) then the bankruptcy trustee can ask for the monies to pay the bankruptcy estate. For the tax year 2012, the average tax refund received was over $2,000.00.  In many cases though, if the clients have children the tax refund is substantially higher.  It is not uncommon for tax refunds to be $5000 or $6000 or $7000 for a single mother who makes less than $25,000 but has children.

As noted before, a bankruptcy trustee can now ask directly to the IRS to have the tax refund sent directly to the bankruptcy trustee and there is nothing a client can do about it if the tax refund is not protected.

Practice Pointer:

Ask the client what his tax refund will be and then protect it before he files his case. Even if it is just an estimate, that is better than nothing. (A good way to estimate is to look at his previous return for the prior year  and to use that amount.)

Bankruptcy Marketing Pointer:

Knowing that the average tax refund is more than $2000, this is the time when bankruptcy attorneys know that clients will have money to pay their fees.  This is a good time to file cases as people have the cash to pay your bankruptcy fees.  Do not file their case before they receive the monies as we have explored what happens when you become a creditor in a case (hint: your fee is discharged). So give that client a call you has not paid up his fee to you prior to filing the case, could be he has a $2000 check in his back pocket.


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