Written by Craig D. Robins, Esq.
This post is part of a series of articles this week addressing every aspect you will need to know about filing bankruptcy, protecting tax refunds and related issues. To see all posts in this series to date, click this link: Tax Refunds and Filing Bankruptcy  .
Effect of a Tax Refund on the Means Test
For purposes of the means test, a tax refund that is received during the six-month means test period, must be included as income for purposes of the means test.
Technically, the means test requires that you allocate the full tax year refund into a six-month period, which as the effect of doubling the amount of the refund, which can provide for a very unfair result, and can result in you failing the means test for this reason alone.
Fortunately, it seems to be the accepted practice to pro-rate the refund over a twelve-month period.
However, strictly construing the means test can sometimes help a debtor. If the tax refund is received outside of the six-month means test period, then technically it does not have to be included in the means test at all.
I’ve learned over the years from representing our Long Island bankruptcy clients, that including the tax refund in the means test or not can sometimes make the difference between passing the means test or failing it.
This underscores the importance of getting competent advice from an experienced bankruptcy lawyer before filing for bankruptcy.