Ch 7 and tax return loss

[bkadv]

Just wondering since I've saw no posts from others who've lost their tax returns in ch 7 this year. Are we the only ones who've lost their return?
If anyone else has any experience with this let me know.

[anonymuse]

It's considered disposable income and generally you lose it.

[newday]

I was extended until I turned over my taxes and the forms, but they didn't keep it because it was too small. It was less than $20, but I didn't manipulate my taxes, last year I had to pay over $200. still waiting for discharge and close though.

[miss puff]

But tax refunds are refunds of monies already made. Don't they take your "gross" monthly income when figuring out the median test? I don't know exactly how to word what I am trying to say here but how can they take a refund when they are using your pre-tax, gross dollars as income and then try to add the refund to that? Is that making sense?

[anonymuse]

It's considered disposable income in the context of the trustee can get it during your plan. It is not considered disposable income in the context of calculating your current monthly income based on the average of the previous 6 months before filing.

I'm not sure if I'm understanding what you are saying Miss Puff; however, I'll give it a stab. Some people could purposely take out more taxes than the government requires so that they can get a refund and try to sneak it past the trustee. That's why they consider it fair game.

[SinkingFast]

When I joined, a lot of "Beat the Deadline" rush filers were getting close to Discharge. Many were commenting a condition of their discharge was they'd have to turn over any income tax refund from 2005 this spring. The Trustee would figure out their portion and refund the rest.

Income tax refunds are considered disposable income by the Court. If you file Ch 13, the Trustee will take the refund every year you're in the plan. If you file Ch 7, the Trustee will prorate the refund up to the date of filing. If you file on Oct 1, the Trustee will take 9/12ths of the refund.

Trustees vary in how they take the funds. Many forbid Direct Deposit. Trustees can, and do, intercept Direct Deposit payments of tax refunds. The money never makes it to the filers' accts. It gets sent direct to the Trustee. Some Trustees require you send them your income taxes and the check from the IRS. The Trustee will refund the portion they decide not to keep. Some Trustees will tell people to send in their income tax forms and then notify the BK filer how much the Trustee wants.

Trustees have many different ways to collect your income tax refund, but generally, they do get the money. One way or the other.

[JeepMom]

There was no mention of our tax return.

We filed in Sept '05.

[SinkingFast]

JeepMom brought up an interesting point.

Timing seems to carry a lot of weight with filing and many Trustee's interest in income tax refunds. It's almost as if Trustees' interest in income tax refunds is "seasonal".

Many Trustees are very interested in income tax refunds of people who file BK during tax season AND late in the year. People who file May/June thru Aug/Sept generally don't hear any mention of interest in their income tax refund from the Trustee.

[aa06a47]

Income tax refunds are considered disposable income by the Court. If you file Ch 13, the Trustee will take the refund every year you're in the plan. If you file Ch 7, the Trustee will prorate the refund up to the date of filing. If you file on Oct 1, the Trustee will take 9/12ths of the refund.

Trustee stated at 341 meeting that we get to keep the first 1k of tax refund, he gets the rest. I hope I get a 999.99 refund.

[miss puff]

Income tax refunds are considered disposable income by the Court.

Okay, last question, I promise, and then I will file. I just have to make sure I understand this very well first. In saying that tax refunds are disposable income, it would be added to our annual income when doing the means test? So figuratively speaking, lets say hubby makes 77,000 per year, median income is 82,290 in MN. We took out a 401K hardship withdrawl for 2,000. We received about 5,200 in tax refund this last March. Does trustee want all these added to figure out the means test? We are over if they take the tax refund and add it that way. Am I doing this right? Thanks

[no_it_all]

Have you actually grabbed a Means Test Calculation form and filled it out? I am guessing that you haven't. You figure out your average gross monthly income for the last six months. You subtract your local, state and federal taxes. NOT THE TAXES YOU PAID, BUT THE ACTUAL TAXES YOU OWE!! Grab a copy of your 1040 and look at the line that says "total taxes". Refunds are not even relevent since the "refund" is simply subtracted from the over payment of your taxes (and obviously then used to increases your net income dollar for dollar).

Example: Your gross income was 3K per month. You paid 600 per month in taxes. That resulted in an over-payment of say, 1K for the year. Why? Because you had your employer take out more than he should have or you had more deductions than you thought. It doesn't matter. Why? Because the Means test cares less how much you sent the IRS. The Means test only cares about how much you actually OWE the IRS. So when you do the Means Test Calculation, you write down your gross income and then you subtract your ACTUAL TAX LIABILITY..not what you sent to the IRS...but your actual form 1040 taxes due number...good luck!!

[miss puff]

thanks no it all, I did do the means test, but I am going to run the numbers through again using your calculations and see how they play.

[arf75]

The trustee told to amend my schedules b and C and exempt my tax refund. file it with the court and send him a copy. I hadn't done my taxes yet when I filed back in April but when I had my 341 meeting I had to take a copy of my taxes. that's when he told me what to do.

[ugh]

Our attorney also told us how important timing is regarding tax refunds. Our tax refund was close to $4,000. We received it and spent it two weeks before filing (that was fun). We were told not to spend it on anything lavish and to keep track of where we spent it in case it was brought into question. We brought all of our pets to the Vet and got them a years worth of preventative medications. We purchase some baby gear (jogging stroller, clothes, diapers and etc.) for our one-year old. In addition, my husband purchased a nice tool box and tools since he is a motorcycle mechanic and items he uses for work are exempt. Anyway, our trustee never asked us anything about it nor will they take any future refunds. We are very happy about that.

Although it was fun spending our tax refund, it's too bad that we couldn't have put it in savings. I wish they would raise the limit of cash you can have on hand at the time of filing. I understand the logic, but what about emergencies one might run into shortly after filing?

[dweebolina]

We filed Ch7 at the end of December 2005 and our 341 was in March. The Trustee took both our Federal & State income tax refund AT our 341. We had our biggest one this year ($7000). Turned us obviously into an asset case.