An experienced Arizona bankruptcy lawyer must always determine the best time for a debtor to file bankruptcy. Many factors should be considered. Any money that a debtor is entitled to as of the debtor’s bankruptcy filing date becomes property of the debtor’s “bankruptcy estate” that is controlled and administered by the bankruptcy trustee. This includes tax refunds that the debtor is entitled to at the time of the bankruptcy filing. So, if a debtor decides to file for bankruptcy now but expects to receive a 2015 tax refund next year, the debtor is technically entitled to part of that refund as of the date of the bankruptcy filing. The trustee will most likely require the debtor to turn over any tax refund that is received next year (depending on the size of the refund).
The refund amount that a debtor is required to turn over to the trustee depends on the debtor’s bankruptcy filing date. For example, if a bankruptcy is filed on June 30, 2015, the debtor’s 2015 tax refund (which the IRS and/or the state will send to the debtor sometime after the debtor files an income tax return in April 2016) will include refund money attributable to work the debtor performed prior to the June 30, 2015 bankruptcy filing date. Therefore, the debtor is technically entitled to approximately 50% of the tax refund as of the bankruptcy filing date of June 30, 2015 (because 6 out of 12 months had lapsed prior to the bankruptcy filing date). Because the trustee is entitled to all monies the debtor is entitled to as of the bankruptcy filing date, the trustee will be entitled to 50% of the 2015 tax refund when the debtor receives it next year.
One reason why Arizona bankruptcy filings are low in January, February and March is because debtors that consult with competent Arizona bankruptcy lawyers may be advised to wait until the debtor receives and spends any upcoming tax refund. Of course, this also depends on whether the debtor has time to delay the bankruptcy. For example, a bankruptcy delay may be unfeasible if an immediate bankruptcy is necessary to stop a pending foreclosure or garnishment. Always consult with a competent Arizona bankruptcy lawyer to determine the appropriate time to file bankruptcy.