How Does Filing a Chapter 7 Bankruptcy Affect My Tax Refund?

How Does Filing a Chapter 7 Bankruptcy Affect My Tax Refund?

By Tracy L. Hirsch

When a Chapter 7 bankruptcy petition is filed in Kentucky, there is a court appointed trustee assigned to your case. The trustee’s job is to determine if there are any unprotected assets that can be sold or collected in order to distribute funds to creditors in the case.

A tax refund is an asset in a bankruptcy case, regardless of whether the refund has been received or not. Therefore, the refund, or expected refund, is an asset that must be disclosed in the Chapter 7 bankruptcy petition and exempted by any applicable exemption.

Depending on the state the the debtor files the bankruptcy petition in, there may or may not be an available exemption to protect the tax refund or a portion of it.

Both Kentucky and Indiana do, however, provide an unlimited exemption for any portion of the refund that is based upon Earned Income Credit.

All tax refunds must be disclosed in any bankruptcy case, including Chapter 7 and Chapter 13.

In Kentucky, debtors may utilize federal exemptions, which are much more generous than state exemptions when it comes to protecting cash or cash equivalent assets such as tax refunds.

Each individual who files in Kentucky is entitled to claim a $1,225.00 “wildcard” exemption that can protect cash, checking account balances, tax refunds and other miscellaneous assets that are not otherwise covered by an exemption.

In addition to the wildcard exemption, a debtor may use up to $11,500.00 of the unused portion of their homestead exemption. In the case of an individual debtor that does not have equity in any real estate, they could potentially protect cash and other cash equivalents up to $12,725.00.

Indiana follows its own set of state exemptions which are limited when it come to cash and other intangible personal property. An upcoming tax refund is an asset that is dealt with in the same manner as cash on hand or in a checking or savings account.

Based on Indiana exemptions, each debtor may exempt only $350.00 in intangible personal property. Therefore, in the case of an individual debtor that is expecting a significant tax refund, there is a high likelihood that he or she may lose that refund if they file their case before the refund is received and spent.

In most cases, the timing of the bankruptcy petition is key. Therefore, it is imperative to discuss any tax refund issues with a local Louisville attorney before filing your Chapter 7 bankruptcy case.

If you’d like to learn more about the differences between a Chapter 7 bankruptcy and Chapter 13 bankruptcy (and which one is right for you), call or text me today at (502) 435-2593.

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I Prepared My Federal Tax Return, and I Can’t Afford to Pay the Taxes that I Owe. Now What?

I Prepared My Federal Tax Return, and I Can’t Afford to Pay the Taxes that I Owe. Now What?

By Tracy L. Hirsch

If you owe more money than you can afford to pay, don’t panic. There are steps that you can take to avoid major penalties from the IRS.

If you’ve prepared your 2018 federal tax return and realize that you owe a large amount to the IRS, you might think that the situation is hopeless. While it’s a stressful situation for sure, there are options to keep the IRS from calling (and to keep your blood pressure down).

Here are the basic do’s and don’ts when you have a hefty federal tax return balance:

1.) DO file your tax return(s).

If you’ve taken the steps to prepare your tax return, and found out that you owe way more than you thought you would, it might be tempting to not file your taxes at all. However, if you do that, it will only make matters worse.

Not only should you file your tax return, but it’s also imperative that you file on time. While it’s true that the IRS does implement a penalty for failing to pay, you’ll also incur a penalty for filing past the deadline (April 15th).

So even if you determine that you can’t pay what you owe in full, the first step is to file well before the deadline (ideally in January or February) so that you don’t get slammed with a late-payment penalty.

If you neglected to file your taxes last year and/or the year before, it’s important to file those along with this year’s tax return, as you’ve probably already accumulated interest from the penalties on the previous years’ taxes that you owe.

Once you’re up-to-date on filing, there are options for paying your current and past due taxes when you’re unable to pay the lump sum at one time.

If you can’t afford to pay the federal taxes that you owe, don’t avoid filing your return. You have other alternatives that won’t get you in trouble with the IRS.

2.) DO find out if you qualify for an IRS payment plan.

If you only owe a few thousand dollars, it might be beneficial to apply for a short-term installment agreement with IRS Form 9465. A short-term IRS payment plan gives you 120 days to pay the taxes that you owe.

It should be noted that you’ll still have interest applied to this, however, the fees will be much lower when avoiding the late-filing fees.

This is why it’s important to file this year’s tax return on time, so that your interest and fees will be kept at a minimum. Even with the interest that you’ll accrue from the IRS payment plan, it’ll be lower than the interest from a personal loan or credit card.

In addition to that, you won’t be receiving phone calls from the IRS, or worse, a notice that they’ve filed a federal tax lien against you.

You’ll need to calculate how much you owe, and whether or not you can pay it within the time frame allotted by the IRS. For example, if you know that you owe $4,000 this year, and you can afford to pay $1,000 a month (plus applicable interest), you’ll be able to pay your taxes in full within the 120-day/4-month period.

This would allow you to pay all of your taxes without getting into hot water with the IRS since you’d set up a plan where you’d agree to pay all of your taxes within the 120-day time frame.

3.) DO speak with a local bankruptcy attorney.

While some may only owe a few thousand dollars in federal taxes, many often owe tens or hundreds of thousands, which is impossible to pay off, even with an IRS payment plan.

While the IRS does offer a long-term payment plan, it’s only for those who owe less than $50,000. Even if you owe slightly less than that amount in taxes and back taxes, you’ll still be paying a lot of interest on those taxes.

If you owe more than $50,000 (or even an amount below that which is beyond your ability to pay), one of the best options is to file for a Chapter 13 bankruptcy. An experienced attorney who focuses on Chapter 13 bankruptcies can help you set up a repayment plan that would be much more affordable that trying to pay on your own.

Not only can you set up a reasonable and affordable tax payment plan through your bankruptcy filing, you’ll also be able to keep your house and your car by including those in your bankruptcy case as well.

While filing for bankruptcy may seem like a “last resort,” it’s actually a wise decision since you’ll avoid the risk of having your wages garnished and you’ll protect your valuable assets, such as your home and vehicle in the process.

4.) DON’T ignore your tax issues.

If you owe a large sum to the IRS, it’s tempting to want to bury your head in the sand and hope that it’ll all magically disappear. The reality is that things will only get worse the longer that you avoid filing and paying your taxes.

If you owe way more than you could possibly pay in one lump sum or in a short-term IRS payment plan, contact a local bankruptcy lawyer to see what your options are in regards to filing for bankruptcy.

At Hirsch Law, we always offer free consultations, and are here to provide you with the most realistic options that will protect your bank account, car, and home. For more information, call (502) 435-2593 to find out if Chapter 13 bankruptcy is right for you.

Consultations are available on weekdays, evenings, and even Saturdays at our convenient Louisville location. If you want to rest easy at night without worrying about the IRS coming after you, we’re ready to help!

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If you work for JCPS, please read this!

If you work for JCPS, please read this!

By Tracy L. Hirsch

Find out if you’re one of the 4,000 JCPS employees who may be getting double-charged for your 2019 insurance plans, and what to do about it.

What you should be aware of right now.

It was recently brought to my attention by my friend that she, along with a few thousand other Jefferson County Public School employees, are being charged for two dental plans and two vision plans this year. The only way to know if you are one of them is to look at your pay stub or log into your online employee portal.

Since most JCPS employees have direct deposit, and therefore may not look closely at their pay stubs or bank accounts, I want to encourage you to look at your most recent pay stub and log into your online employee portal to see if you’re one of the employees who is currently enrolled in all four plans.

Those who are currently enrolled for two dental and two vision plans should have received a letter from JCPS, telling them that they are currently enrolled in a JCPS vision plan (EyeMed Vision) and a KY State vision plan (Anthem Vision), as well as a JCPS dental plan (Delta Dental) and a KY State dental plan (Anthem Dental). The letter also outlines how to rectify the situation.

How this happened.

For those who have dependents, they noticed a large increase in what was taken out of their paycheck at the start of this year (compared to last month), and started asking questions.

It turns out that employees were instructed by JCPS to log into their online employee portals at the end of 2018 (during Open Enrollment) to verify that they didn’t want to make changes to their health, dental, or vision plans for 2019.

When employees logged in, some of them saw the option to add a dental plan and vision plan, and assumed that they weren’t currently enrolled in one since they were being asked if they wanted to enroll in the State vision and dental plans (i.e. Anthem Vision and Dental).

Since employees were never required to log into their portals every year for insurance purposes in the past, many employees interpreted the prompt inside the portal to mean that, from here on out, they would have to manually add dental and vision plans to their healthcare plans.

That actually wasn’t the case, but because it was unclear, over 4,000 employees enrolled for the State (Anthem plans) in their employee portals, and are now being charged for both of the State (Anthem) plans and both of the JCPS plans.

Basically, JCPS was giving employees more dental and vision options, but didn’t make it clear that if an employee were to choose the State (Anthem) dental and vision plans, that they would have to cancel the JCPS dental and vision plans (which they were automatically enrolled in) in order to not be charged for all four plans.

Double check your pay stubs to see if there’s a noticeable difference in your net income. If there is, you may be double enrolled in two vision plans and two dental plans.

What this means (and how it might be affecting you).

This means that, as stated above, all JCPS employees were automatically enrolled in JCPS’s employee vision and dental plans for 2019 (as they have been in years past), and that those who manually added the State (Anthem) vision and dental plans from their portal accounts are now being charged for all four plans.

If you are one of these employees, this means that every single month in 2019, you will be charged for two different vision plans and two different dental plans when you obviously only need one of each.

If you want to avoid being charged for the State (Anthem) dental and vision plans that you manually added in your employee portal, you can have them removed. Here’s how:

What to do about it.

You should have received a letter in the mail a few weeks ago from JCPS informing you that you are currently enrolled in two dental plans and two vision plans for 2019, and are therefore being charged for four plans total.

In the letter, it states that in order to only stay enrolled in one dental plan and one vision plan, here’s what you need to do immediately:

1.) Decide which plans you want to keep and which ones you don’t.

     > To see the benefits of the JCPS plans (EyeMed Vision and Delta Dental), go to:> Employees > Benefits > Benefits and Plan Information > Voluntary Benefits >*select “dental” or “vision”*

     > To see the benefits of the Anthem plans (Anthem Vision and Anthem Dental): > Benefits > Dental, Vision, Life Insurance >*select “dental” or “vision”*

2.) Contact the JCPS Benefits Department to request the appropriate forms for cancelling your unwanted plans. There are three ways to contact them:

     > E-mail your Benefits Coordinator

  •      > Call the JCPS Benefits Department at (502) 485-3436.
  •      > Stop by the Benefits Department located in the VanHoose Education Center.

          3332 Newburg Road

          2nd Floor

          Louisville, KY 40218

Hours are Monday – Friday from 7:30 am – 4:30 pm. No appointment is necessary.

Please share this information if you have friends or family members who work for JCPS, as this could save them from overpaying several hundred dollars this year!

**[If you are part of the JCPS teacher’s union, and feel that you should be reimbursed, contact your union representative. If you have any additional questions, be sure to use one of the contact methods above, as our law office is not employed by or affiliated with JCPS.]**

             >> This blog post was written in January of 2019. <<

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Chapter 7 Bankruptcy vs Chapter 13 Bankruptcy: Which is the Better Choice?

Chapter 7 Bankruptcy vs Chapter 13 Bankruptcy: Which is the Better Choice?

By Tracy L. Hirsch

If you have a mountain of debt that’s keeping you up at night, and you’re not sure how to get on the right track, filing for bankruptcy can be a viable option.

While many people assume that the term “bankruptcy” is equivalent to a four-letter word, it can actually be the impetus to a fresh start where you can gain true financial freedom. If you’ve been researching your options, you’ve probably noticed that there are two types for individuals.

When it comes to Chapter 7 vs Chapter 13 bankruptcy, which is the best choice?

Each option is based on your annual income, personal assets, and total amount of debt. If you’re unsure which option is best for you, your local Louisville bankruptcy attorney can provide legal advice for your specific situation, and help you start the filing process.

In the meantime, here is some helpful information to help you make an informed decision about which option will most likely help you.

There are many factors when determining whether a Chapter 7 or Chapter 13 will give you the most protection. That’s why it’s important to meet with an experienced bankruptcy attorney — to help you make the right choice.

Chapter 7

We’ll start with Chapter 7 Bankruptcy since this is a more popular option for people needing complete financial relief. Filing for a Chapter 7 is an option if you don’t have enough income to make monthly payments toward your total amount of debt.

It’s also known as a “discharge of debts,” meaning that once you have concluded your bankruptcy case (which takes approximately ninety days for a Chapter 7), your liability for many of your credit card balances, medical debts, and other unsecured bills are wiped out.

You can only file for this type of bankruptcy if your income is too low to repay a portion of your debt (a determination that is made based upon your income and household size).

Because Chapter 7 is known as a “liquidation” of assets, many people fear that they’ll have to turn over their personal assets (home, equity in the home, vehicle, etc.) to the court in order to pay off the debts that they owe, but in almost all cases that is simply not true.

There are many exemptions available that allow debtors to protect their real estate, vehicles, household goods, and many other items, including cash. However, you must remain current on your mortgage and car loan payments in order to diminish the risk of losing your home and/or car.

If you qualify for and file a Chapter 7, you are legally released from any obligation to repay any remaining debt. Chapter 7 bankruptcy will stay on your credit report for ten years, but will wipe away all of your debt based on income and other qualifying hardships and individual expenses.

There are certain types of debts that are excluded from discharge, and your bankruptcy attorney can discuss that with you during your consultation.

Chapter 13

When looking into the details regarding chapter 7 vs chapter 13 bankruptcy, most people qualify for Chapter 13. Filing for Chapter 13 Bankruptcy is an option that allows you to pay back at least a portion of your debts over a time period of three to five years.

A Chapter 13 is usually the best option if you make a livable wage, and do not want to risk losing your home, your car, and other valuable assets. It is also much less expensive upfront to file for Chapter 13 bankruptcy and is a great option for individuals already being garnished that have little money for upfront costs.

If you’re not current on your mortgage or car payments, and are facing an impending foreclosure on your house or a repossession on your car, a Chapter 13 can help you keep those assets, while allowing you to make lower monthly payments toward your unsecured debt (credit cards, medical bills, etc.).

If approved, the court will set up a monthly repayment plan (where most of your debts are rolled into one monthly payment) if your income level shows that you can afford the monthly payments. You keep your personal assets, such as your home and vehicle, and if you’re behind on your mortgage payments, they will integrate that past-due amount into your repayment plan.

In many situations, a Chapter 13 Bankruptcy can even help lower interest rates on high interest car loans and furniture installment loans. Old tax liability can be included in a Chapter 13 repayment plan as well.

Under Chapter 13, you have to adhere to a budget that is monitored by the court, and you are assigned a trustee to whom you send your monthly payment. Your trustee uses your monthly payment to pay your creditors (the people and/or companies to whom you owe money). This means that creditors cannot call you and ask you for money, as you are now legally protected due to the bankruptcy filing.

This type of bankruptcy will stay on your credit report for seven years, but will help you keep your most valuable assets while paying back your debt.

What Are My Next Steps?

I offer free consultations, where we meet in person to discuss your financial situation, and create a plan that will give you a fresh start.

To schedule your consultation, please call me or text me at (502) 435-2593. I look forward to working with you!

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Facing Foreclosure? Here’s How Filing for Bankruptcy Can Stop It.

Facing Foreclosure? Here’s How Filing for Bankruptcy Can Stop It.

By Tracy L. Hirsch

If you’ve recently received a foreclosure letter, you’re probably worried that you’re going to lose your home. The thought of having to move, find a new living situation, and leave the place where you and your family have made memories is stressful and heartbreaking. 

While it may feel like a hopeless situation, there are multiple options to stop a Kentucky foreclosure on your home, and filing for Chapter 13 bankruptcy is one of them.

Whether you got behind on your mortgage payments due to loss of a job, illness, or other hardship, filing for bankruptcy will buy you extra time to find another job or recover financially from a disability while still keeping your home. As long as you file before the sale of your home, the foreclosure will immediately cease.

Don’t give up hope if you’ve received a foreclosure notice. A Chapter 13 bankruptcy may help you save it.

How Is That Possible?

Under federal law, mortgage lenders are prohibited from trying to collect your past-due amount in one lump sum when you file a Chapter 13 bankruptcy petition.

They are also required to work with you, along with any other creditors that you may have, to come up with a realistic repayment plan so that you can achieve financial stability again.

This not only gives you an opportunity to keep your home and repay your mortgage loan, but also gives you an opportunity to make payments on any unsecured debts, such as credit cards and medical bills.

If you’re trying to get back on your feet after getting laid off, recovering from surgery or illness, or after acquiring excessive credit card debt, Chapter 13 bankruptcy may be the solution for you.

The court will work with you to create a reasonable monthly payment that is commensurate with your income and the size of your household, and you won’t lose your home when you make those payments every month.

Hirsch Law Is Here For You

If you’re facing a Kentucky foreclosure, and want to stop it immediately, give me a call today to set up a free consultation. Filing for bankruptcy in order to save your home doesn’t have to be confusing and overwhelming. I can explain everything you need to know, and help you get back on track.

Text or call me at (502) 435-2593, or send me an e-mail at

I’ll work hard to help you stop a foreclosure as quickly as possible, and will meet with you in the evening or over the weekend if need be. I look forward to speaking with you!

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Creating a Stable Financial Future: 5 Important Tips for Millennials

Creating a Stable Financial Future: 5 Important Tips for Millennials

By Tracy L. Hirsch

Are you in your 20’s or 30’s (or know someone who is), and feel overwhelmed by budgeting, student loans, credit, and retirement? You’re not alone. Here are 5 practical steps to help you establish a path to financial stability.

A recent survey from Ally Financial found that approximately 52% of millennials feel that they need guidance in managing their finances, and they’re worried about adequately planning for their future.

It’s understandable, as the financial landscape for millennials looks a lot different than it did for their parents.

With traditional pension plans falling by the wayside, and many employers no longer offering retirement plans or healthcare coverage, millennials are feeling the weight of the changing economy.

Add that to the stress of paying off student loans in unprecedented amounts (i.e. extremely high), and the future often appears bleak.

The good news is that there’s hope for a stable financial future for millennials. However, their financial planning strategy will look somewhat different than their parents’ and grandparents’ did.

If you’re in your 20’s or 30’s, and are concerned about having too much debt and too little savings, here are five tips for getting on the right track:

1.) Create a job plan.

When looking at the job market just a few decades ago compared to now, it has changed drastically.

The majority of Baby Boomers and those in Generation X (i.e. your grandparents and parents) spent their entire careers working for one company, or at the very least, a decade or two before moving onto another company.

The reason for this is that they were usually promoted within the company and were able to work their way up to a higher position. Unfortunately, in the current job market, you often have to seek out another company in order to get a raise and/or promotion. Sometimes, another company reaches out to you.

Either way, in order to stay in the loop in regards to new job opportunities, create a LinkedIn account and join other networking groups to make yourself visible online and in your community.

Additionally, make sure that your resume is up to date, as well as your professional skills. If there are specific skill sets in your field that will give you a competitive edge, take some online courses and get certified in those areas so that you can add that to your resume.

You may even want to do some freelance work to gain additional experience in those areas too.

While most older adults assume that millennials have been taught how to manage their finances, many of them have never had a financial course in high school or college.

2.) Invest in your retirement funds.

If you’re fortunate enough to have an employer (such as a large corporation) that offers an IRA or 401(k), then it’s definitely a good idea to take advantage of those benefits. This day and age, it’s even more important to put as much money as you can into those accounts since Social Security is not a guarantee.

With the monetary amounts being lowered every year, and the age for eligibility continually increasing, the likelihood of receiving the same amount of social security benefits that your grandparents and parents have is very slim.

While most large corporations still offer retirement perks, many small to mid-sized businesses are starting to dwindle down on the retirement options that they offer since it’s unaffordable and unsustainable. This means that you’ll have to start saving on your own.

Even if you have an IRA and a 401(k), you’ll still need to save outside of those if you want to retire early. If you don’t have those plans,you’ll need to set up a retirement savings account in addition to another separate savings accounts (which brings us to the next tip).

3.) Open two savings accounts.

In addition to a retirement savings account, you’ll also need a regular savings account that can double as an emergency fund and a ‘future purchases’ fund.

If you get laid off from your job or have unexpected medical bills, it’s important to have cash to pay for those needs. You’ll also want to stow money away for large purchases, such as a down payment on a house or a new car(as well as money for any repairs that those things may need down the road).

So exactly how much should you save? A good rule of thumb is to put at least 20% of your income into your regular savings account, and at least 10% into your retirement savings account (if possible, 15% or 20% if you don’t have an IRA or 401(k).

While this seems like a lot, you’ll be thankful that you did when need to make a large purchase or when you’re ready to exit the workforce.

4.) Pay off your student loans as quickly as possible.

Most millennials have student loans, and for some, it’s more than $50,000. While it may seem impossible to get those loans paid off, it can be done in just a few short years if you put as much money as you can toward your balance.

In order to do that, it means not eating out, making your coffee at home, and cutting back on things that aren’t necessities. While it seems like these things won’t make much of a difference, they really do add up.

For example, if you purchase a large latte everyday on your way to work (Monday through Friday), and it costs $4.50 per latte, that’s $22.50 a week. That adds up to $90 a month, which means that you’re spending $1,080 a year on coffee!

That $1,080 can be put toward your student loans, in addition to any money that you’re currently spending on “extras.” While it may seem painful now to cut back on frills, you’ll be so thankful you did it when you’re finally free from those huge monthly payments.

5.) Don’t use credit cards for large purchases – budget instead!

It’s important to look at your net income, and create a monthly budget so that you’ll know how much you’ll have left to save each month after paying the bills for your basic necessities.

If you need to make a large purchase, plan ahead. Wait until you’ve saved enough money so that you can pay cash for it.

While it’s tempting to put appliances, electronics, and other large purchases on credit cards, you’ll regret it in the long run. Paying interest as high as 29.99% (depending on the card) causes stress-inducing debt in addition to any student loans that you already have.

Credit cards in and of themselves aren’t bad, and ironically, are actually necessary to build solid credit. However, you should only use a credit card for charging small purchases, such as gas and groceries, so that you’ll be able to pay it off in full every month.

Also, make sure to use less than a third of your credit limit and pay the balance on-time every month, as this will show that you’re a responsible borrower, and will increase your credit score.

While financial planning may look different for millennials than it did for previous generations, the basic tenet is still the same — save, save, and save some more!

Even if you’re only able to save a small amount each month while you’re paying off your student loans, those “small” amounts can add up to a large nest egg after several years.

Remember that living below your means now will give you a lot of freedom later on in life!

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I’m getting a tax refund this year, and I also have unpaid debt. Should I use my refund money to help pay down the debt?

I’m getting a tax refund this year, and I also have unpaid debt. Should I use my refund money to help pay down the debt?

By Tracy L. Hirsch

Here are some helpful guidelines when deciding what to do with your federal and KY tax refunds if you owe money to creditors.

If you’re carrying debt into the new year, you may be wondering if you should use your tax refund to help pay it off. In addition, you may be asking yourself how much of your refund you want to use toward that balance.

At first glance, the idea of using your tax refund to pay part of your debt sounds like a wise financial choice. However, upon closer examination, it may not be so black and white.

In certain situations, using your tax refund to pay part of your debt won’t bring the financial relief you’re seeking. So when and where should you allocate the money from your tax refund? It really comes down to how much debt you have.

Here’s are a few wise options if you find yourself in one of the following scenarios.*

1.) Paying off a small amount of debt.

As a disclaimer, when we use the terms ‘small,’ ‘moderate,’ and ‘large’ when referring to amounts of debt, the definitions are subjective. What may be a small amount of debt to one person, could be detrimental to another.

That being said, this is a general guideline that applies to the majority of the population. If you have a small or “manageable” amount of debt, it’s most likely going to be a couple thousand dollars or less.

When prospective clients come into my office to inquire about bankruptcy, and they tell me that they have $1,200 total in debt, I tell them that it’s not worth it to file for bankruptcy. If they’re up-to-date on their tax filings and they’re getting a tax refund, I advise them to use their refund to pay off the debt.

Even if the refund doesn’t cover the entire balance, it’s still best to just pay it off as quickly as possible, as it can most likely be paid off in full in a few months’ time.

For example, it your total amount of debt is $1,200 in credit card debt, and your tax refund is $600, then you have $600 left to pay. Even if you have a 24.99% APR on the card, you would only have to pay $213 a month after applying your tax refund in order to get your debt completely paid off in three months.

In this particular situation, because the debt amount is low, it’s wise to use any federal and/or state tax refund to pay it off.

When you’re expecting a tax refund, it can be wise to use it pay off your debts if it’ll cover most of your total balance. If it’s only a drop in the bucket however, it’s important to look at other options.

2.) Paying off a moderate amount of debt.

While a small amount of debt is manageable, and can often be completely covered by a tax refund, things start to get a little more complicated when there’s a moderate to large amount of debt.

It’s important to assess your income level and all financial obligations when deciding whether or not your tax refund will be helping your situation, or whether it will just end up being a drop in the bucket.

For example, if you have $6,500 in unsecured debts (credit cards, medical bills, etc.), you may be able to pay a good portion of it with your refund, and then pay off the remaining balance over several months’ time.

However, the one caveat is that you need to make certain that your refund will cover enough of your debt balance to allow you to pay the rest without going into more debt or falling behind on your bills.

Even if your refund covers half of your ‘moderate’ amount of debt, it may still be possible to pay off the rest in addition to your monthly bills if you’re budgeting meticulously.

However, if your refund doesn’t cover a good portion of your debt, or if it does, but you still can’t afford to pay the rest without getting behind on your mortgage or car loan, you’re now entering into the ‘large’ amount of debt category.

This is where your tax refund should be used in a different way.

3. Paying off a large amount of debt.

Once you’re in a situation where you can’t pay your rent or mortgage, your car loan, student loan, or any other regular bill, your tax refund most likely won’t save you.

Whether your debt amount is $8,000 or $80,000, you’ll most likely never get out from underneath it if your refund is small and creditors are already coming after you.

If this is your particular situation, it’s actually advisable to NOT put your tax refund toward your debt. While that decision may seem counterintuitive, there’s a good reason for it.

If you put all of your refund money toward an insurmountable amount of debt, you’ll not only lose that money, but you’ll still have creditors coming after you since you’ll barely scratch the financial surface so to speak. It’s basically a lose-lose situation.

While this may sound like a hopeless situation, it’s definitely not. There’s a way to get a fresh start, and that’s by filing for bankruptcy. Whether you file for a Chapter 7 or Chapter 13, a bankruptcy will not only bring you the financial relief you desire, but it can also help protect your assets, such as your home and your car.

In order to get on a path to a better financial future (where creditors aren’t knocking on your door), you can use your tax refund money to cover the filing fees for bankruptcy.

Once you pay your filing fees in full and your Louisville bankruptcy lawyer files your case, you’ll automatically be protected from your creditors.

In a nutshell, using your tax refund to pay for Kentucky bankruptcy filing fees will:

     a.) allow you to file for bankruptcy right away,

     b.) stop creditors from calling you,

     c.) protect your assets, and

     d.) help you get on a path to financial freedom by reorganizing your debts.

As you can see, when deciding what to do with your tax refund in regards to your debt, there are many variables to consider. If you’re unsure whether or not filing for bankruptcy is a viable option for you, I’m here to help.

With 20 years of legal experience, I’ll help you determine the best plan for your specific situation. Call or text me directly at (502) 435-2593, or e-mail me at to set up a completely free consultation.

You deserve peace of mind, and your IRS and KY tax refund might help get you there!

All the best,

Tracy L. Hirsch

*Disclaimer: This blog post is purely informational, and should not be construed as legal advice. If you have debt and want to learn more about your options, meet with an experienced bankruptcy attorney in Louisville, Kentucky to find out what would work best for you.

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