1. Adjust Your Withholding

If you’re planning ahead, one of the best ways to avoid losing a refund is to reduce your tax withholding so you don’t overpay throughout the year.

• Instead of waiting for a big refund, you’ll receive more in each paycheck.

• Just be sure you’re still withholding enough to cover your taxes.

2. Spend Your Refund on Necessities

If you’ve already received your tax refund but haven’t filed bankruptcy yet, you may be able to spend the funds on essential expenses before filing.

Examples of acceptable uses:

• Rent, mortgage, or utilities currently due

• Home or car repairs

• Food, clothing, or medical care

• Education expenses

⚠️ Avoid these pitfalls:

• Don’t prepay months of rent or other expenses to try to “hide” money.

• Don’t buy luxury items.

• Don’t repay friends, family, or “preferred creditors.” These are considered preferential payments, and trustees can demand the money back.

👉 Keep receipts and records of how you spent the money. That way, if the trustee asks, you can show it went to necessary living expenses.

3. Use Arizona Bankruptcy Exemptions

When you file for Chapter 7 bankruptcy in Arizona, most of your property becomes part of the bankruptcy estate. The trustee can use non-exempt assets to pay creditors.

But Arizona law allows you to exempt certain property, meaning you get to keep it.

• Look for exemptions that apply to cash, bank accounts, or tax credits

• If your refund qualifies as exempt property, the trustee cannot take it.

Because exemptions can vary based on your situation, it’s best to consult a local bankruptcy attorney to determine exactly what applies to you.