Financial Planning for Generation X & Y Women
 
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Expert Q&A Archive

12/04/2009
What to do with tax return during bankruptcy proceedings?
I filed for Chapter 13 bankruptcy last month. Before doing so I had planned to use the bulk of my income tax return ($4,000.00) to start my home-based business. Should I wait until my bankruptcy is discarded or should I follow my passion of running my own business? (I will still have my full-time job of course for steady income.)
Jana Castanon:
expert info »
Because of the legal issues involved here, I would suggest you ask your lawyer the best way to proceed with your income tax return.
Gerri Detweiler:
expert info »
It is essential you talk with your attorney about what will happen with your tax refund while you are in bankruptcy. Don't assume it is yours to spend however you like. Until your case is discharged, your finances are under scrutiny by the Trustee.

If your attorney gives you the green light to use your refund to start your business, then you can go head and get started. If, however, you can't, you don't have to put your dream entirely on hold.

I'd suggest you make an appointment with a local SCORE counselor for a free consultation to discuss your business and marketing plans, understand any local licensing requirements, etc. You can also use this time to brush up on skills you may need but don't have yet, such as bookkeeping, marketing etc. Finally, you may want to start your website, which you should be able to get off the ground for very little cost.
Suzanne Kincaid:
expert info »
When are you receiving the $4,000 tax return? Summer of 2010? If you will be receiving the money before your bankruptcy has been filed and closed, then that $4,000 could be used to pay off some of your debts.

If you anticipate receiving the refund after the closing of your bankruptcy, then you can still move forward now.

You can move forward with preliminary business planning and researching.

Having your own home-based business has significant tax savings and is easy to do while still working full-time. You just need to devote a minimum of 3 - 4 hours per week on your new business, keep good records, and operate with the intent to make a profit (of course).

Ron Mueller is a recognized IRS Tax Expert. He has a very affordable book [Home Business Tax Savings MADE EASY!]--about $40--that shows you what deductions you can take with the tax codes to give to your accountant. He also has a fabulous one- minute tax recordkeeping system. More info here: www.TaxDeductionsForHomeBusinesses.com
Frank Wells:
expert info »
You may not like my response, but I question why you filed bankruptcy to remove creditor liabilities against you while you have financial resources set aside to start a business. I believe that is the primary question, followed by questions about moving forward. You could be surprised by the relationships restored when you attempt to address the prior obligations.
Elizabeth Rusnak:
expert info »
If you foresee a need for any type of financing for your start-up business, your bankruptcy may possibly hinder your financing opportunities. If not, getting financing for your start-up business will jeopardize the success of your new business, and then it may be wise to hold off starting it (and keeping your full-time job).
 

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