Tax Refunds and Bankruptcy

Tax refund season is eagerly anticipated by clients, retailers and professionals alike.  Many clients defer needs such as purchases of furnishings, vehicle repairs or professional services, such as dental work or needed legal work.

When counseling clients on the use of the refund for purchases, I typically suggest that needs vs. wants be evaluated. Clients who are living on a modest budget, many times will have a lot of pent up demand, as well as deferrals for necessary items.  It is helpful to start with a wish list and then narrow down according to the actual purchasing power of the refund.

After we have a list of necessary uses, we can then determine how the uses fit in their financial strategy going forward.  For example, a client with a $6,000.00 tax refund may need to decide whether to repair her vehicle or purchase a dependable well maintained vehicle for $4,000.00.  We can then evaluate whether the use of the remainder of the refund to file a bankruptcy to eliminate credit card debt will help her to have a budged that cash flows for the rest of the year.