Utah Bankruptcy:
Tax Refunds Require Careful Planning


Unlike more liberal states, Utah does not allow you to protect your tax refunds from the bankruptcy trustee.  This means the trustee will take all or a portion of your tax refund away unless you plan carefully.  What does this careful planning look like?  Well, if you are expecting a large refund you must delay the filing of your bankruptcy case until you receive the refunds and spend them down on permissible expenses.  This bears repeating:  If you file your bankruptcy case before you get the tax refunds, you have to turn every dime of it over to the bankruptcy trustee.  No amount of begging the trustee will change this fact.  For some people this means suffering under a garnishment for weeks or even months while they wait for their W-2s so they can complete the tax returns. 



If your bankruptcy case has not yet been filed but you have received a refund, do not spend any of it before talking with your attorney.  One of the worst things you can do is to pay back a family member or friend any money you owe them – this is known as preferential transfer and may lead to your trustee suing them for that money.

If you have not yet filed your bankruptcy case but are planning to soon, you should spend the money down.  But consult with an attorney first and make sure you hang on to all the receipts.  Generally speaking, you are usually safe with purchases relating to food, medical bills, one month of utility bills, car repairs, etc.  Better to be safe than sorry, though, so ask your attorney before doing so.

Utah Bankruptcy Clinic
1140 36th St., Suite 205
Ogden, UT 84403