Spending Income Tax Refund

[AreSoonParted]

Hello All,
I am expecting to get a large($5,000) income tax refund in Feb '07. I currently plan on filing for Chapter 7 in late March or early April. I qualify under the means test because I have 5 kids, and if it's close one of my kids has a disability.

I will be filing using Indiana exemptions which means my wife and I get 16k in wildcard exemptions. I tallied up all my assets around the house, cars, etc...and they total about 12k and that is with rounding up. I am current on all my credit cards, and have pretty much stopped using them since Thanksgiving.

My question is: Can I buy something or pay down my current car loan with the proceeds from the tax refund?, or would this be considered fraud. I plan to talk to an attorney this month about it, but wondered if anyone had any experience in disposing (ie spending) of a large chunk of cash prior to filing..
I don't plan on wasting it on luxary items, but just don't want to get nailed for buying assets right before bk then exempting them.


As an FYI, I have about 100k in debt largely due to health issues and a house that sold for 60k less than I bought it for, so the 5k won't be nearly enough to dig myself out.

Thanks, and happy New Year...(I know mine will be once this current juggling act can be over)...

[brainless twit]

Generally, you should be okay to use your tax return as long as you're prepared to answer to a Trustee about what you spent the money on.

If you use your tax return to buy clothes, replace a broken appliance, pay household bills, etc., you're probably fine. If you use it to buy a four-wheeler or a big screen TV, it will probably be called into question.

(Not a lawyer. Just a fellow bankrupt person. )

[lrprn]

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I am expecting to get a large($5,000) income tax refund in Feb '07. I currently plan on filing for Chapter 7 in late March or early April. I qualify under the means test because I have 5 kids, and if it's close one of my kids has a disability.

The Indiana median income for a 4-person family is $64,565 plus $6,300 for each additional member - http://www.usdoj.gov/ust/eo/bapcpa/2...come_table.htm . Since you have a spouse in addition to the five kids, then you are a 7-member family and the median income used will be $83,465.

As far as one of your children having a disability, it's my understanding that it needs to be one that has been diagnosed by a qualified specialist and that the child requires services not available through the public education system iin order to qualify you to list that on the second part of the Means Test. Be sure to ask several qualified bankruptcy lawyers about this.

I will be filing using Indiana exemptions which means my wife and I get 16k in wildcard exemptions. I tallied up all my assets around the house, cars, etc...and they total about 12k and that is with rounding up. I am current on all my credit cards, and have pretty much stopped using them since Thanksgiving.

The Indiana exemptions are listed at http://www.bankruptcyinformation.com/IN_exemp.htm . Here it shows a homestead plus personal property exemption of $7500 plus a $4000 wild card for real estate or tangible personal property which equals $11,500. Are you and your wife filing jointly? If you are, then Indiana *may* allow you to double this to $23,000 - another question to ask several Indiana bankruptcy lawyers during a free initial consultation.

Also if you included your household goods in that 12K total, did you use garage sale prices to value everything? The typical US has standard household goods valued at $2-3,000.

My question is: Can I buy something or pay down my current car loan with the proceeds from the tax refund?, or would this be considered fraud. I plan to talk to an attorney this month about it, but wondered if anyone had any experience in disposing (ie spending) of a large chunk of cash prior to filing. I don't plan on wasting it on luxary items, but just don't want to get nailed for buying assets right before bk then exempting them.

Since you are planning to file after you receive your tax refund, then it *may* be ok to spend it as long as it's spent on legitimate family expenses. This is definitely a question to ask several bankruptcy lawyers before spending the money! If you are advised it's ok, then be sure to keep all receipts in case it's questioned by your trustee. However, if you end up receiving the refund after you file and before your case is discharged and closed, then it belongs to the trustee to do what he/she will with it. Some trustees allow filers to keep their refunds, but if the refund is more than $1,000 (and yours is), I wouldn't count on keeping it. Put this on your question list to ask during your free consultations with 3-4 bankruptcy lawyers.

Good luck, and please keep us posted on what you find out during your lawyer visits.

[SinkingFast]

Personally, were this my situation,.......... I'd Consult around with attnys. Find the one you want to work with. Find out what the attny's fee will be to handle your BK. When your income tax refund comes, set aside that portion to pay the attny and your BK filing fee in full.

The rest of the money,............

Don't pay down on your car. Your car payments will figure in on the Means Test for one thing. The payments will be a pro rated amount. Annualized forward over 60 months. But still some $$$'s none the less for the Means Test. Also, that's more equity you have to cover with your Exemptions.

Better to have Exemption $$$'s left over than to not have enough. Plus, filing in the spring, AND because you'll have spent your refund before filing, your Trustee may go after a pro rated portion of your 2007 refund. << Of course you can always dink with your withholdings to be sure there won't be a refund. >>

You can apply the excess Exemption $$$'s, if any, toward your anticipated refund. Say you learn a bonus is going to be paid 2-3 months after you file,........ You can apply the excess Exemption to that. Any number of contingencies may require you use those Exemption $$$'s.

Use the rest of the money to buy things you need and/or will use. Clothes. Doctor's visits. Dentist. Auto repairs. Home repairs. Need a new fridge??!! Stock up the pantry with canned goods, toilet paper, paper towels and such. Things that won't go bad that you'll use eventually.

Make sure it's necessitites types of expenses. And save all your receipts. You wanna be able to verify to the Court what you spent the money on.