What happens to Stimulus rebate / tax refund in bankruptcy?-part3

Question: Will my trustee take my stimulus payment, that I received before I filed?

As mentioned before, no stimulus payments have yet been sent. It’s impossible to predict now how it will be treated in a bankruptcy.

A trustee may treat the stimulus payment received before you filed as the same as a tax refund received before you filed. If this happens, you can officially keep the stimulus payment or tax refund if it’s already spent on ordinary expenses (nothing luxurious), if it’s exempted, or if you convert it into an exempt asset.

Even if your stimulus payment is not exempted, it may be small enough that a trustee might not bother taking it.

Additionally, it’s possible (although I think unlikely) that a trustee wouldn’t try taking an unspent and non-exempt stimulus payment already received, since it’s intended to be received by taxpayers and spent to help the economy, rather than just be given to creditors.

Question: Can the IRS keep my stimulus payment if I owe certain types of debts?

The stimulus payment is being treated the same way as any IRS refund, for the purposes of the IRS keeping it from you. The IRS will offset any refund it issues you toward outstanding tax and certain non-tax liabilities, rather than actually issuing you a check.

Debts that the IRS will offset any refund (including the stimulus payment) against include past-due: taxes to the IRS, taxes to your state, child support, alimony, student loans, certain fines/penalties/court fees, overpayments of federal benefits, and other debts to federal agencies.

If the IRS offsets your stimulus payment against an outstanding liability, the good news is most of the debts the IRS offsets against isn’t dischargable in a bankruptcy anyway. So, even though you won’t receive the cash, you are likely still receiving a benefit from the stimulus payment, even if it’s only reducing your post-bankruptcy remaining debt.