What to do with tax refund?

[sean]

I haven't made the decision to file yet, but it is a possibility.
I'm getting a tax refund and wondering what to do with it.
Can I use it to pay back a 401k loan that I took out a few months ago?
Would that be considered preferential payment?
Any other advice?

[JRScott]

Paying yourself back is indeed a preferential payment.

If you are looking to dispose of the refund in approved ways:

Vehicle maintenance
Home maintenance
Dental Appointment
Eye Appointment
Medical Check Up (like having cholesteral checked, sugar checked, those kinds of things)
Clothing and Shoes (Not excessive, but if really in need)
Charity (up to 10%....)
Stock the cupboard

Things like that

It's okay to catch up on bills on things you plan to keep like home or car, it is however not acceptable to pay ahead on any bills.

[sean]

The problem is that I still haven't decided whether to file or not. If I'm not going to file, than I'd rather put the refund towards paying off debt and eliminating another monthly payment, instead of spending it on things that really can wait.

How long before a filing do they look for preferential payments?

[sean]

What about putting it towards our home equity line?
Since that is a secured debt, would it be considered preferential payment?

We'd still have little to no equity, even if the whole tax refund went towards the equity line.

[TEW]

The problem is that I still haven't decided whether to file or not. If I'm not going to file, than I'd rather put the refund towards paying off debt and eliminating another monthly payment, instead of spending it on things that really can wait.

How long before a filing do they look for preferential payments?

But if you do file and have sent you money to creditors you have wasted that money. Do you have money to pay for an attorney? Is your car/s in good enough shape that it is going to last you a couple of years? Try reading the posts from people that file and loss their car or have to file and can not pay attorneys fees. I stopped paying utilities for 2 months to pay my lawyer then caught up after I filed.

[JRScott]

Okay you say you have not decided.

That's fair.

If you take the entire tax return and pay down your debt, could you make the necessary payments and maintain a reasonable lifestyle on your present income?

If you can then paying down the debt is the right thing to do putting you back on the path towards good economic standing.

If on the other hand you run the figures and you still wouldn't be able to make it, it is better to use the list I provided above and pick up some areas you've neglected as many do in financial hardship and make plans to file the bankruptcy as soon as feasible.