By Corey Smith, Attorney at Law
Now Debtors in Chapter 7 bankruptcy in Oregon in many cases are able to keep their tax refunds, even if they are huge.
Few people seem to be aware of a significant change in bankruptcy rules. Since July 1, 2013, debtors in Oregon for the first time may select federal exemptions. Exemptions protect property from seizure by the trustee, and allow debtors to retain their possessions. The single largest result of this rule change is to make available a federal “wildcard” exemption in the amount of $12,725 ($25,450 for married debtors filing jointly), which can be applied towards any personal property the debtor chooses. It can increase the amount of equity protected in vehicles, household goods and furnishings, wearing apparel, appliances, jewelry, tools and many other items of personal property. Thus, if the debtor is expecting a large tax refund, a portion of the wildcard can be applied to the refund and allow the debtor to keep it.
It must be noted, however, that this option to select federal exemptions may not be advisable if a debtor owns a home with more than around $11,000 in equity (doubled in a joint filing), and will require a case by case evaluation, depending on the nature and value of other potential assets. One can not attempt to apply federal exemptions to some property and state exemptions to other property, but must be consistent with the set of exemptions selected.
This change represents a significant step in helping Oregonians in financial difficulty get back on their feet and gain control of their finances. Before considering bankruptcy, debtors should seek the advice of a bankruptcy attorney to make sure that bankruptcy is the right solution for their problem. Some debts, such as child support, most student loans and recent-year taxes, are not dischargeable in bankruptcy.