The question often arises about tax refunds when someone files bankruptcy. It usually arises in a Chapter 7, known as a liquidation. The rule is, if you are entitled to a tax refund at the time of filing, it belongs to your estate, which means the bankruptcy trustee might take it to pay creditors. So if you are filing before you get a refund, you should talk to your attorney about possibly delaying until you get the refund and have a chance to convert it to exempt assets. There is nothing illegal about converting cash (the refund) into an asset that is exempt from the trustee, such as buying food storage, or a new freezer. Your attorney can advise you what is best.
Even if you file after getting a refund, some trustees are now keeping your case open to see what kind of a refund you get next year (for the year in which you filed). Then they might claim a portion of it, based on what time of year you filed. For example, suppose you file on July 1, half way through 2009. When you file your 2009 taxes in 2010, the trustee might claim to be entitled to one half of that refund. Again, consult with your attorney.
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