Will trustee question how we spent our tax refund?

[sheilaE]

I previously posted this question in General Bankruptcy Talk, but no one responded Maybe it should be here instead. Moderator pleased delete my other if I've posted too many times.

We have yet to file-retained atty in March. Received a $9000.00 tax refund also in March. Atty said spend it-don't let it sit in our account, but don't spend it not on vacations or flat screen TV type of items. We used some for the atty fees, some for a down payment for a used car and the rest went for getting caught up on a delinquent cable bill, electricity, food. I also put $1000.00 into my daughters acct to pay for her Jr college classes and books. She paid for the classes and will get all the books once school starts. She also just started a part time job to help buy her school supplies and pay for the next semester of school, being we won't have to the money to help her. My question is: will the trustee go into her account and take back what little money she's made? I know Calif has different rules regarding tax refunds, so I'm hoping they won't drain her account. She was so happy to get her first check, it would make me so sad to see them take it from her.

[SMinGA]

Worst case scenario? It could create a minimum amount that must be repaid to creditors. People don't generally lose assets or have the trustee claw back payments to 'insiders'.

[Licoriceky2]

Hello SheilaE,

I have a similar situation. We received approx $9k, our attorney actually told us to let the money sit, not to spend it, however at risk of losing the funds, we made a decision (maybe poor) to spend same. We bought some much needed furniture, baby items, retained the atty, and I lived off of some of the funds while I was on FLMA due to family illness.

One attorney we consulted with, whom we did not retain, stated that under no circumstances would she tell the trustee that we purchased furniture, but to be vague and communicate that we bought baby items, paid bills, retained the atty and lived off of same. She said they the trustee would have a significant issue with us buying the furniture. I was going to put $1-$2k into a savings account for my infant daughter however both attorneys stated emphatically that this was a bad decision as more than likely the trustee would go in and capture same as this would be considered “gifting” even though it was for our minor child and her savings.

We just filed Friday and our 341 is on July 2, 2010 however I expect the issue of our tax refund to arise. To what consequence, I do not know. If you would like to PM I would be happy to keep you abreast of what happens to us in regards to the tax refund. Just for your information, this board and forum has been the most helpful thing to me during this process. If you read it and keep up, you will become very well informed and educated. I cannot tell you how much help it has been to me and how much better it has made me feel about our current situation. Best of Luck!

[SMinGA]

Licoriceky, from prior posts I believe you were filing ch. 13 and had alot of non-exempt assets after exhausting your exemptions but also you have limited DMI? If correct, your attorney was likely giving advice based on this. The non-exempt assets would create a minimum amount you must pay in to create a confirmable plan, so having more cash (assets) or 'giving' it to anyone would increase your minimum payback. Something that could be a problem for your situation.

Someone with less or no non-exempt assets would be in a different situation.

[angles]

Our attorney told us not to worry about our expenditures unless there is a large amount of money being moved that could imply fraud. He gave us a figure like 4-5K but I felt that is a ridiculously high number. I personally don’t think your $1,000 payment has fraudulent intentions so I would not worry too much about it. Worse case scenario the trustee may ask for it back.

[momofthree]

Eastern District of CA, we were not asked how we spent our tax return (it was $5400).

[Universal]

We were asked how we spent our $1,200.00 tax refund. As we were asked about my $25,000. inheritance last year. I made a list of what the money was spent on. I had 2 major surgeries last year and husband had oral surgery. Tax refund went for tires, paying up insurance, yada yada. Trustee didn't comment on any of the spending but there was no gifting, etc. involved.