The Breakdown: Refund Anticipation Loans

As we all know, the holiday season can be one of the most stressful times of the year.  The added pressure of trying to buy gifts for family and friends can push an already strained budget to the breaking point.  With the tax filing season fast approaching, it can be tempting to consider taking out a tax refund loan, but there are some important points to keep in mind.

What is a Refund Anticipation Loan?

These types of loans have become increasingly popular and are offered by several of the nationally known tax preparing agencies.  They promise to get your refund quickly in the New Year.  The technical term for these loans is a Refund Anticipation Loan.

Essentially you borrow against what you expect to receive as your tax refund for that year.  When your refund is paid out by the government, then the agency that loaned you the funds is repaid with your refund.  This can be a risky venture if you’ve had large changes in the previous year or if you’ve had many different income sources.

If the refund you actually receive is less than what was expected, then you’ll owe the difference to the loan company.  Many advertise that they do not charge interest on these loans, but that may only be if the full balance is paid by your refund.  If your refund isn’t enough to cover the balance, then you may end up paying interest and fees on the difference.

What is an Unsecured Debt?

In bankruptcy, these types of loans are unsecured debts.  If you owe a balance because your return didn’t cover the amount of the loan, that debt can be dealt with in either a Chapter 7 or Chapter 13 bankruptcy case.

Importantly, if you are in an active bankruptcy case, then a refund anticipation loan may not be possible for you.  Even though it seems like your borrowing against your own refund, these loans are technically extensions of credit.  Any use of credit while you’re in a bankruptcy case must be approved by the Court first. If you’re considering applying for a loan like this, be sure to speak to your bankruptcy attorney first.

Let Us Help You With Your Financial Worries

If you’re considering a loan to try to help with financial struggles this time of year, then consider taking steps to eliminate all of your debt worries and start the New Year with a clean financial slate.  I urge you to make an appointment at one of our convenient Bond & Botes offices.

We have locations in Alabama and Mississippi.  You’ll meet face-to-face with one of our experienced bankruptcy attorneys, and there is no charge for an initial consultation.  Let us help you get back on track and make 2019 a great year!