Protecting Your Assets and Tax Refund in Chapter 7

Unplanned events can lead a family or business to the brink of financial disaster. When an unplanned event rudely camps in your living room, a Wyoming bankruptcy may be your best option to protect assets—especially if you start with early planning.

Common Mistakes to Avoid Before Filing

Without a plan for managing your debt and assets, a lack of information often leads to poor decisions that work to your detriment, reduce your exemption allowances, and waste precious family resources on debt that could have been included in the Chapter 7 bankruptcy.

Common Pre-Filing Mistakes

Your completion of the worksheets, production of documents, and participation in the closing require your best effort and full candor to ensure accurate, truthful, and complete disclosure about your financial affairs, assets, and debts. Anything less may put you at risk of not receiving a discharge or having your discharge revoked.

  • 1
    Borrowing against a 401(k) retirement account that would have passed through bankruptcy as exempt.
  • 2

    Borrowing against equity in the family residence when the equity would have passed through as exempt.

  • 3

    Using a large tax refund to buy time with creditors when it could have been spent on family needs.

  • 4

    Selling exempt household furnishings at a sharply reduced value.

  • 5

    Using the family’s exempt motor vehicle to secure a payday loan.

  • 6

    Paying down credit card or medical debt that would be discharged, while failing to pay non-dischargeable debt like taxes or child support.

Wyoming Exemption Allowances

Maximizing exemption allowances ensures that a debtor retains the assets necessary for a fresh start following the Chapter 7 bankruptcy. The major asset classes protected by Wyoming exemption laws include:

Home Equity

$40,000 for married couples or $20,000 for single persons

Retirement Accounts

Unlimited protection for 401(k), pension, and IRA accounts

Motor Vehicles

$10,000 equity in two vehicles (married) or $5,000 in one vehicle (single)

Household Items

$4,000 per person ($8,000 for married couples in same residence)

Tools of Trade

$4,000 in value for work-related tools and equipment

Clothing & Rings

$2,000 in value for clothing and wedding rings

Additional Protections

  • 75% of net wages due on the bankruptcy filing date
  • 100% of Social Security income or disability income
  • 100% of Worker’s Compensation benefits
  • Life insurance or disability insurance monthly benefit payments
  • Cash surrender value of most life insurance policies

Managing Your Tax Refund Wisely

It’s common to see tax refunds of $8,000 or more. When grappling with past due debt, the temptation is to use the tax refund to partially catch up on bills. The problem with this approach is two-fold:

  • Using the tax refund to pay overdue bills does not address the core problem of having more debt than household income can support
  • The tax refund is not spent down strategically to ensure maximum benefit to you and your family

Smart Ways to Use Your Tax Refund Before Filing

Your completion of the worksheets, production of documents, and participation in the closing require your best effort and full candor to ensure accurate, truthful, and complete disclosure about your financial affairs, assets, and debts. Anything less may put you at risk of not receiving a discharge or having your discharge revoked.

  • Spend on family necessities: clothing, household furniture, appliances, vehicle tires

  • Pay non-dischargeable debt: past due child support or delinquent taxes

  • Catch up on utility bills

  • Pay future expenditures: rent, mortgage, or vehicle payment a month ahead

  • Stock up on groceries to fill the pantry and freezer

  • Pay insurance premiums in full

Warning: Avoid Family Loan Repayments

You should not use any part of your tax refund to repay loans extended by family members. The Bankruptcy Code defines such a repayment as a “preference” if made within 12 months of your bankruptcy filing. If there is a preference, you or your family member must pay the amount to the Chapter 7 trustee. However, you may make payments to family members after your Chapter 7 bankruptcy has been filed.

Plan Ahead with Expert Guidance

Once exempt property is disposed of prior to a bankruptcy filing, it cannot be recovered. To emerge from bankruptcy with your basic assets intact, consult with a knowledgeable bankruptcy attorney as early as possible.

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2026-04-12T11:58:51-06:00

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