Bankruptcy Guide‎ > ‎Assets‎ > ‎

Tax Refunds


How long a chapter 7 case lasts from start to finish often depends on whether the bankruptcy is an "asset" or "no asset" case. An asset case is one in which there is something that a bankruptcy trustee can take for payment to creditors. Asset cases typically remain open a year or two — sometimes longer. Most no asset cases are closed in less than six months.

Among the assets that trustees look for in Colorado bankruptcy cases are non-exempt tax refunds. This includes refunds for the current year and any previous year that have not been received and spent by a debtor when a bankruptcy is filed. 

If Colorado exemption laws apply, any part of a federal refund from the Earned Income Credit (EIC) or the Additional Child Tax Credit (2012 Form 1040, Lines 64a and 65, respectively) is exempt and cannot be taken by a trustee. However, the rest of any federal or state tax refund is fair game. For instance, a refund resulting from the Child Tax Credit on Line 51 is not exempt. 

A debtor about to file bankruptcy or with a pending case in Colorado may want to consider the following in preparing a federal tax return.

  • If there is no refund, there is nothing for a trustee to take. 

 Example 1  No Refund  
 Form 1040  
 Line 44 Tax  $6,000 
 Line 51 Child Tax Credit $-0- 
 Line 61  Total Tax  $6,000 
 Line 62 Tax Withheld from Forms W-2  $5,000 
 Line 64a Earned Income Credit $-0- 
 Line 65 Additional Child Tax Credit $-0- 
 Line 73 Amount Overpaid/Refund $-0- 
 Line 76 Amount You Owe  $1,000 
 Result:  No Asset from Refund  
 Debtor Exempt Amount of Refund  
 Trustee Non-Exempt Amount of Refund 



  • If the refund is equal to or less than the sum of the Earned Income Credit (Line 64a) and the Additional Child Tax Credit (Line 65), there is nothing for a trustee to take as long as the Earned Income Credit and the Additional Child Tax Credit are claimed exempt.

 Example 2  Refund  EIC + ACTC  
 Form 1040  
 Line 44 Tax $6,000 
 Line 51Child Tax Credit $-0- 
 Line 61 Total Tax  $6,000 
 Line 62 Tax Withheld from Forms W-2  $5,000 
 Line 64a Earned Income Credit $2,000 
 Line 65 Additional Child Tax Credit $1,000 
 Line 73 Amount Overpaid/Refund $2,000 
 Result:  No Asset from Refund  
 Debtor Exempt Amount of Refund  $2,000 
 Trustee Non-Exempt Amount of Refund  $-0- 



  • Any part of a refund that is greater than the sum of the Earned Income Credit (Line 64a) and the Additional Child Tax Credit (Line 65) is non-exempt and can be taken by a trustee to pay creditors.

 Example 3  Refund > EIC + ACTC  
 Form 1040  
 Line 44 Tax $6,000 
 Line 51Child Tax Credit $-0- 
 Line 61 Total Tax  $6,000 
 Line 62 Tax Withheld from Forms W-2  $7,000 
 Line 64a Earned Income Credit $2,000 
 Line 65 Additional Child Tax Credit $1,000 
 Line 73 Amount Overpaid/Refund $4,000 
 Result:  Asset from Refund  
 Debtor Exempt Amount of Refund  $3,000 
 Trustee Non-Exempt Amount of Refund  $1,000 


  • Minimizing or not claiming the Child Tax Credit (or deductions if itemizing) may reduce a non-exempt refund and may make the total assets in the case minimal enough for a trustee to abandon or ignore. If so, the length of time in bankruptcy for a no asset case should be substantially less than if there is an asset estate. By not claiming a credit (or deduction) if a debtor does not benefit from it, a debtor also may make a very small contribution toward helping us avoid a future "Fiscal Cliff."

 Example 4a  Child Tax Credit Claimed  
 Form 1040  
 Line 44 Tax  $6,000 
 Line 51 Child Tax Credit $1,000 
 Line 61 Total Tax  $5,000 
 Line 62 Tax Withheld from Forms W-2  $6,500 
 Line 64a Earned Income Credit $-0- 
 Line 65 Additional Child Tax Credit $-0- 
 Line 73 Amount Overpaid/Refund $1,500 
 Result:  Asset from Refund  
 Debtor Exempt Amount of Refund  $-0- 
 Trustee Non-Exempt Amount of Refund  $1,500 


 Example 4b  No Child Tax Credit Claimed  
 Form 1040  
 Line 44 Tax  $6,000 
 Line 51 Child Tax Credit $-0- 
 Line 61 Total Tax  $6,000 
 Line 62 Tax Withheld from Forms W-2  $6,500 
 Line 64a Earned Income Credit   $-0- 
 Line 65 Additional Child Tax Credit  $-0- 
 Line 73 Amount Overpaid/Refund $500 
 Result:  Minimal Asset from Refund  
 Debtor Exempt Amount of Refund  $-0- 
 Trustee Non-Exempt Amount of Refund  $500 


Alternatively, . . .


 Example 5a  Child Tax Credit Claimed  
 Form 1040  
 Line 44 Tax  $1,000 
 Line 51 Child Tax Credit $1,000 
 Line 61 Total Tax $-0- 
 Line 62 Tax Withheld from Forms W-2 $1,000 
 Line 64a Earned Income Credit $2,000 
 Line 65 Additional Child Tax Credit $1,000 
 Line 73 Amount Overpaid/Refund $4,000 
 Result:  Asset from Refund  
 Debtor Exempt Amount of Refund  $3,000 
 Trustee Non-Exempt Amount of Refund  $1,000 


 Example 5b  No Child Tax Credit Claimed  
 Form 1040  
 Line 44 Tax  $1,000 
 Line 51 Child Tax Credit $-0- 
 Line 61 Total Tax  $1,000 
 Line 62 Tax Withheld from Forms W-2  $1,000 
 Line 64a Earned Income Credit $2,000 
 Line 65 Additional Child Tax Credit $1,000 
 Line 73 Amount Overpaid/Refund $3,000 
 Result:  No Asset from Refund  
 Debtor Exempt Amount of Refund  $3,000 
 Trustee Non-Exempt Amount of Refund  $-0- 



I am a bankruptcy attorney, not a tax guy, which means I do not give tax advice other than to point out the bankruptcy implications. Print this web page so you can discuss this matter with your tax return preparer before filing your federal return.

As always, one's individual circumstances should be reviewed with an attorney and a tax return preparer for bankruptcy and tax consequences. There may be other bankruptcy-related strategies available that make consulting with an experienced bankruptcy attorney licensed to practice in your state a really good idea.