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Bankruptcy and the New Child Tax Credit – What You Need to Know

Bankruptcy and the New Child Tax Credit – What You Need to Know

What is the New Child Tax Credit:

We are days away from a new Child Tax Credit that is being rolled out to help ease families still struggling coming off the pandemic. These payments are part of the American Rescue Plan Act of 2021 and they serve as an advance on the Child Tax Credit that you would normally receive through your 2021 tax refund (that you receive in Spring 2022). The total credit is up to $3,600 for young children, or $3,000 for children older than 6 years. 

Starting July 15, parents with children under 6 years old will receive $300 per child for the next 6 months. For children between the age of 6 to 17, parents will receive $250 per child for the next 6 months. 

How to Qualify: 

You do have to income qualify for the Child Tax Credit. You can receive the full credit if your income is under $75,000 for single files, $150,000 for married couples filing joint taxes and $112,000 for ‘head of household’ filers. If your income is over, you may still qualify for a reduced credit. 

The IRS is using your income from your 2020 or 2019 tax returns, whichever you have most recently filed. You can still file your 2020 taxes even if you have missed the filing deadline of May 17, 2021. You can check your eligibility with using the IRS’s online tool

If you qualify, there is nothing you need to do. The IRS will begin sending payments July 15, 2021. The IRS will send your funds using direct deposit for the banking information they have on file from your 2020 or 2019 tax returns to send the payment automatically. If they do not have your bank account information, they will send a paper check. 

If you Haven’t Filed Bankruptcy Yet: 

If you haven’t filed a bankruptcy yet, the funds from the Child Tax Credit are able to be garnished under Minnesota law if you owe any judgment creditors. This means if the funds are sitting in your bank account, and a creditor garnishes your bank account, they can take these funds! A bankruptcy can prevent this garnishment and even recover the funds to return to you if you act in a timely fashion. 

If you are in a Chapter 7 Bankruptcy: 

If you have already filed bankruptcy, any Child Tax Credit you receive is protected, and cannot be garnished or turned over to the trustee or bankruptcy court. 

If you are in a Chapter 13 Bankruptcy:

If you are in a Chapter 13 bankruptcy in Minnesota, the Child Tax Credit is yours. It is a not a windfall of money that would have to be turned over or affect your monthly payment to the trustee. 

To see other frequently asked questions regarding the Child Tax Credit, visit the Frequently Asked Questions page.

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