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Once tax season starts up in earnest, we will see posts asking "can
tax refunds be taken by the bankruptcy trustee"? And the answer is
YES. Your tax refund is one of your assets and it can be used to pay
off your debts.
If you file bankruptcy between the time you fill out your 1040 and the
time yoyur refund comes in, you have to declare it explicitly on your
bankruptcy paperwork. But what if you file during the remaining 48 or
so weeks of the tax year? And what if you deliberately refuse to file
a return with the hopes of making the refund "not exist" until after
the bankruptcy processings are completed?
Finally, how would the bankruptcy trustee deal with a filer who
(fradulently) has excess taxes withheld with the idea of recovering
these taxes as a refund after the bankruptcy is granted?
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Once tax season starts up in earnest, we will see posts asking "can
tax refunds be taken by the bankruptcy trustee"? And the answer is
YES. Your tax refund is one of your assets and it can be used to pay
off your debts.
Partially. While a tax refund is clearly an asset of the estate, whether it
can be taken to pay debts depends on which state you live in, which trustee
you have, and the exemptions available to you.
If you file bankruptcy between the time you fill out your 1040 and the
time yoyur refund comes in, you have to declare it explicitly on your
bankruptcy paperwork. But what if you file during the remaining 48 or
so weeks of the tax year? And what if you deliberately refuse to file
a return with the hopes of making the refund "not exist" until after
the bankruptcy processings are completed?
This usually won't work. Most trustees explicitly ask whether you expect a
refund, whether you received a refund last year, and will request copies of
your returns. If it looks as if you will have a substantial non-exempt
refund, the trustee will normally declare the case an asset case and keep it
open until the return is filed and the refund received.
Finally, how would the bankruptcy trustee deal with a filer who
(fradulently) has excess taxes withheld with the idea of recovering
these taxes as a refund after the bankruptcy is granted?
The trustee could ask the court to revoke the discharge on the grounds of
bad faith.
--
Brett
*****************************************************************
* Personal Injury/Malpractice Bankruptcy *
* *
* BRETT WEISS, P.C. *
* Attorneys at Law *
* Maryland, D.C. and Federal Bars *
* lawyer@erols.com *
*
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The real issue is how much excess refund is left after deduction of
available exemptions. Most Trustees do not want to undertake a major
project for a small amount to distribute to creditors. My experience is
that trustees will not bother unless the non-exempt refund is over
$1200.00.
Timothy Horrigan wrote:
Once tax season starts up in earnest, we will see posts asking "can
tax refunds be taken by the bankruptcy trustee"? And the answer is
YES. Your tax refund is one of your assets and it can be used to pay
off your debts.
If you file bankruptcy between the time you fill out your 1040 and the
time yoyur refund comes in, you have to declare it explicitly on your
bankruptcy paperwork. But what if you file during the remaining 48 or
so weeks of the tax year? And what if you deliberately refuse to file
a return with the hopes of making the refund "not exist" until after
the bankruptcy processings are completed?
Finally, how would the bankruptcy trustee deal with a filer who
(fradulently) has excess taxes withheld with the idea of recovering
these taxes as a refund after the bankruptcy is granted?
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One further point. If the petition is filed in 2003, the refund will be
reduced by prorating the post-petition balance of the year from the
amount of the refund to determine that portion that will be a part of
the bankruptcy estate. The exemptions are then subtracted from that
prorated amount, to determine how much goes to the trustee (and creditors).
Timothy Horrigan wrote:
Once tax season starts up in earnest, we will see posts asking "can
tax refunds be taken by the bankruptcy trustee"? And the answer is
YES. Your tax refund is one of your assets and it can be used to pay
off your debts.
If you file bankruptcy between the time you fill out your 1040 and the
time yoyur refund comes in, you have to declare it explicitly on your
bankruptcy paperwork. But what if you file during the remaining 48 or
so weeks of the tax year? And what if you deliberately refuse to file
a return with the hopes of making the refund "not exist" until after
the bankruptcy processings are completed?
Finally, how would the bankruptcy trustee deal with a filer who
(fradulently) has excess taxes withheld with the idea of recovering
these taxes as a refund after the bankruptcy is granted?
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Um.....I'm having a bit of trouble deciphering the practical effect of
that. Can you elaborate some more on how that works? (e.g., what
difference if someone filed [say] in March of 2003, as opposed to
November of 2003??)
Bill <bbalena@mac.com> wrote in message news:<hWqJb.923$yW1.782193@news2.news.adelphia.net>...
One further point. If the petition is filed in 2003, the refund will be
reduced by prorating the post-petition balance of the year from the
amount of the refund to determine that portion that will be a part of
the bankruptcy estate. The exemptions are then subtracted from that
prorated amount, to determine how much goes to the trustee (and creditors).
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: Bill <bbalena@mac.com> wrote in message news:<hWqJb.923$yW1.782193@news2.news.adelphia.net>...
: > One further point. If the petition is filed in 2003, the refund will be
: > reduced by prorating the post-petition balance of the year from the
: > amount of the refund to determine that portion that will be a part of
: > the bankruptcy estate. The exemptions are then subtracted from that
: > prorated amount, to determine how much goes to the trustee (and creditors).
: >
: Um.....I'm having a bit of trouble deciphering the practical effect of
: that. Can you elaborate some more on how that works? (e.g., what
: difference if someone filed [say] in March of 2003, as opposed to
: November of 2003??)
Your typical chapter-7 taxes about six month to close from petition to discharge,
Petition January Second
Prior year tax return is due to be filed 4/15, but for reason not uncommon,
an extension is requested to 8/15. or possibly another two months is requested to 10/15
If the return is not filed until it's extended due dates lets say 10/15/2003, the whole issue of how
much refund is to be offset to pre-petition debts might be left out of consideration.
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larmyers@hotmail.com (Larry Myerson) wrote in message news:<d5c03d14.0401101028.3793de8f@posting.google.com>...
Um.....I'm having a bit of trouble deciphering the practical effect of
that. Can you elaborate some more on how that works? (e.g., what
difference if someone filed [say] in March of 2003, as opposed to
November of 2003??)
Increasingly (and now, I understand, soon everywhere under the
bankruptcy rules) debtors are required to submit tax returns, and must
have submitted all due returns at the time of filing (past 3 years
anyway).
Date of filing of older returns (and date of assessment) affects
whether any unpaid tax can be discharged.
There is often a squabble as to what portion of a tax refund belongs
to the debtor and what portion to a non-debtor spouse; also how much
relates to post-petition withholding.
Pre-bankruptcy planning can save lots of money.
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using the November example, 11/12 of the refund would be property of the
bankruptcy estate. From that you would deduct any available exemptions
for your state. One month, or 1/12 is post-petition, and not included.
In reality, a tax refund is only deferred income you could have received
during the year. Most dumb Americans choose to get a big lump sum
refund instead of properly planning to get the money in income during
the tax year.
As deferred income, the bankruptcy trustees can and do claim the money
for distribution to creditors.
Employers can even give qualified taxpayers advance earned income credit
payments during the entire year. That way it raises the paycheck
instead of creating a fund for trustees.
Around Sept of each year we begin warning clients about the
ramifications of tax refunds and ch 7 filings.
What is it they say about ignorance of the law?
Larry Myerson wrote:
Um.....I'm having a bit of trouble deciphering the practical effect of
that. Can you elaborate some more on how that works? (e.g., what
difference if someone filed [say] in March of 2003, as opposed to
November of 2003??)
Bill <bbalena@mac.com> wrote in message news:<hWqJb.923$yW1.782193@news2.news.adelphia.net>...
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I filed BK on 12/22/03. My attorney had asked me if I had any tax
refunds coming and I told him no. I assumed that if I had indicated
on the 1040 that the IRS was to apply my refund to 2004 taxes, I
didn't have a refund coming.
What happens in this case? Will they contact the IRS to get the refund
sent to them? Sounds like it from the previous postings.
Thanks -- Karen
Bill <bbalena@mac.com> wrote in message news:<DopMb.1342$Qr3.1074445@news2.news.adelphia.net>...
using the November example, 11/12 of the refund would be property of the
bankruptcy estate. From that you would deduct any available exemptions
for your state. One month, or 1/12 is post-petition, and not included.
In reality, a tax refund is only deferred income you could have received
during the year. Most dumb Americans choose to get a big lump sum
refund instead of properly planning to get the money in income during
the tax year.
As deferred income, the bankruptcy trustees can and do claim the money
for distribution to creditors.
Employers can even give qualified taxpayers advance earned income credit
payments during the entire year. That way it raises the paycheck
instead of creating a fund for trustees.
Around Sept of each year we begin warning clients about the
ramifications of tax refunds and ch 7 filings.
What is it they say about ignorance of the law?
Larry Myerson wrote:
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