If you are in an active Chapter 13 bankruptcy, you cannot receive a rapid tax refund while your case is active. The reason for this prohibition is that a rapid tax refund is a loan against the tax refund you will receive next year. While you are in an active Chapter 13 bankruptcy, you can’t incur any new debt.
I was meeting with a Rome GA bankruptcy client today who said, “Hey Jeff, I’m in a 100 percent Chapter 13 plan and you told me that I could keep all of my future tax refunds since I’m paying off all of my creditors.”
“This is true,” I replied. “What is the problem?”
The client responded by telling about how he went to a rapid tax refund place as was not allowed by the company to obtain the loan because he is in an active Chapter 13 bankruptcy case.
I explained to him that he will be able to keep all of his tax refund when he files his tax return next year but he cannot borrow against it.
The truth about rapid tax refunds is that they are a rip off. Many places charge you $300 for making the loan! What a waste of money! If you just wait a few more months to file the tax return, you get to keep all of the money to yourself.
I understand that many clients get into tight situations and will do just about anything to get the money today. Christmas is coming soon and no one wants their kid’s stocking to be empty on Christmas morning.
However, $300 is too much money to waste. I have some clients whose entire monthly food budget is not more than $300 per month.
Not being able to borrow against the tax refund may be a pain, but in the long run, it puts more money in your pocket. Stay away from the loan sharks and keep your tax refund money all to yourself.