About Discharged Debts

• Once the bankruptcy process is complete, the court may discharge some of your debts. When the court discharges a debt you owe, the credit bureaus must remove the debt from your credit report, and you are no longer liable for repaying it. The creditor to whom you owed the debt can't make any further attempts at collection after the court issues a discharge, regardless of your future income or assets.
  
  

Implications

• To garnish your tax refund or any other source of income, a creditor must have obtained a judgment against you for the debt. In many states, he must also obtain a writ of execution. However, if the court discharged the debt in bankruptcy, the judgment and writ of execution are no longer valid even if he obtained them before you filed for bankruptcy. After the bankruptcy process is complete, no discharged creditor can intercept your tax refund.
  
  

Tax Refunds During Bankruptcy

• During bankruptcy, an automatic stay prevents creditors from making any attempts at collection, including the interception of your tax refund. However, if you receive a refund during bankruptcy, your bankruptcy trustee may require you to turn it over to him. If you have filed chapter 13 bankruptcy, your trustee may require you to surrender all tax refunds you receive until the case closes. If you know you will receive a refund, you may be able to include it with your exempt assets.
  
  

Considerations

• Though discharged creditors can't intercept your tax refund after bankruptcy, creditors whose debts weren't discharged can obtain judgments and use them to garnish your wages and seize your assets or lump sum payments, including your refund. New creditors with unpaid debts can also obtain judgments against you and take your tax refund. To prevent the interception of your refund, you can alter the amount of tax your employer withholds from your paychecks.