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Which Debts Should You Pay Down With Your Tax Refund?


The idea of universal basic income has been around since before the COVID-19 pandemic, but several rounds of stimulus checks have offered insights into what people actually do when they get a temporary and modestly sized windfall while living paycheck to paycheck.  Most people did not splurge their stimulus checks, whether or not they also had income from their jobs.  Some people used their stimulus checks to pay for necessities like groceries and utilities, while others put theirs into savings or used them to pay down their credit card debt.  In previous years, tax refund season was a retail feeding frenzy; retailers would advertise big ticket items that most consumers could only afford to buy at tax refund time.  This year might be different, though.  If you decide to use your tax refund to pay down debt, you will be in good company.  If you are planning to file for bankruptcy protection in the near future, repaying certain kinds of debts could harm your case.  Contact a Miami chapter 13 bankruptcy lawyer to find out more.

Don’t Pay Consumer Debts If You Are Planning to File for Bankruptcy

Chapter 13 bankruptcy filings require you to stick with a payment plan for three to five years, beginning when the court accepts your bankruptcy filing.  At the end of the three-year or five-year period, the court will discharge your remaining balances on the applicable debts.  Most consumer debts are eligible for discharge in bankruptcy; these include credit card debts, medical bills, and personal loans.  You should not pay more than the minimum payments on any bankruptcy-eligible debts in the year leading up to a bankruptcy filing.  If you do, the court might reject your bankruptcy petition on the grounds that you can afford to pay off these debts and do not need to get them discharged.

Don’t Pay Back a Family Member If Bankruptcy Is on the Horizon

Family members floating each other money to avoid defaulting on debts is a common occurrence, and in close knit families, you might even lose track of who owes whom.  In general, using your tax refund to pay back the relative who lent you money when they didn’t have a huge surplus to spare is great for your relationship with your family.  It’s not a great idea if you plan to file for bankruptcy in the near future, though.  The court might assume that, since you can afford to repay your brother, you must not really need the court’s bankruptcy protection.

Pay the Debts That Bankruptcy Cannot Fix or the Debts That Can Keep You Out of Bankruptcy

This is not to dissuade you from using your tax refund to pay debts.  You may find that your tax refund gives you enough money that you can afford to settle some debts instead of declaring bankruptcy.  Even if you decide to declare bankruptcy, you should put your tax refund money toward non-dischargeable debts.

Contact a South Florida Debt Lawyer About Chapter 13 Bankruptcy

A South Florida chapter 13 bankruptcy lawyer can help you file for bankruptcy protection during tax refund season or anytime.  Contact Nowack & Olson, PLLC in Miami, Florida to discuss your case.



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