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filing chapter 7, must future income tax refunds be exempt or would not matter?

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  • filing chapter 7, must future income tax refunds be exempt or would not matter?

    Hi guys,

    I am expecting to receive about 5000 dollars in tax refunds in 2018, no assets what so ever, will be filing chapter 7 pro se. My question is, do I need to worry about this future income tax in February of next year? My understanding is that the U.S. trustee will only look at current and past assets in a chapter 7? However, if it were to be a chapter 13, I would have to include the income tax refunds and most likely will have to use the wild card exemption (will be using federal exemption). Any advice?

  • #2
    If this is a tax refund for tax year 2017 approximately 1/2 of the refund IS property of the bk estate - that portion covering January 1, 2017 through the date you filed. If there is an exemption that you can apply to the 2017 refund, use it.



    • #3
      Hi Des, thank you for your reply.

      My concern is for future income tax refunds (2018) as I am expecting around the same amount of tax refunds. However, in February of 2017, I received about 5000 in income tax refunds (with Earned Income Tax Credits) via my checking account, however, at this point, there isn't much left in the checking account, do I still need to claim exemption of this 5000 from earlier of this year even though my bank account is literal empty at this point (no large cash withdrawal)?


      • #4
        The earned-income tax credit (EIC, EITC) may be exempt in your state based on your exemptions. You would need to check your exemption scheme to see if it is covered. You'll also need to demonstrate that any funds in an account were EIC/EITC funds. As Des wrote, you'll need to figure out just what portion may be subject to becoming property of the Estate (depends on what month you file), and just what you can protect using bankruptcy exemptions (Federal or State).

        You do not need to claim an exemption for money already spent. You "may" need to provide an explanation, though.
        Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
        Status: (Auto) Discharged and Closed! 5/10
        Visit My BKForum Blog: justbroke's Blog

        I am not an attorney. Any advice provided is not legal advice.


        • #5
          The tax refund that you get in 2018 is for the 2017 tax year. You'll need to find a way to exempt it. The tax refund that you got (and spent) in 2017 is from the 2016 tax year, and as JB said, you don't need to exempt it because it's not an asset anymore since you spent it.
          This post does not constitute legal advice. If you use this advice instead of that of a lawyer, God help you.
          Filed CH 7: 5/11/17 341: 6/12/17 Discharge: 8/14/17


          • #6
            Thanks for the reply guys. My understanding then is to not worry about the 2017 tax refunds received, since there's nothing left of it.

            With regards to the future income tax refunds of 5000.00 (2018), on form B106a/b Property Form, I put down on one line income tax refunds 5000.00 (future tax refunds) and then on form B106c (exemption form), on Part 2, I put down federal exemption code 11 U.S.C. § 522(d)(5). I am using federal exemption since all of my property and asset in home and in banks do not exceed 13000.00, and my understanding is that federal exemption code 11 U.S.C. § 522(d)(5) allows up to 12000.00+ exemption of any property/asset. Please correct if I am wrong. Does that seems to be around right?


            • #7
              I think you're using the exemptions the correct way! Lucky for you, you get to use the Federal Exemptions. Florida has lousy exemptions.

              I think you're using the so-called "unused homestead" exemption amount also known as the wildcard. That means your homestead must have $0 of equity to use all of the wildcard. Otherwise, for every dollar of homestead equity, you would have $1 less for the wildcard.

              Home is worth $400,000
              Balance on Mortgage is $390,000
              Equity is $10,000

              In this case...
              522(d)(5) gives you $1,250 for any property
              525(d)(5) "unused" portion of Homestead Exemption would be $1,850 in this case. The unused homestead exemption which can be applied as a wildcard is up to $11,850 but since you would have protected $10,000 of home equity, there is only $1,850 left to use.

              Your total available "wildcard" under 522(d)(5) would be $1,250 + $1,850 = $3,100.
              Last edited by justbroke; 07-14-2017, 11:22 PM.
              Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
              Status: (Auto) Discharged and Closed! 5/10
              Visit My BKForum Blog: justbroke's Blog

              I am not an attorney. Any advice provided is not legal advice.


              • #8
                Thank you for the breakdown, JB. Since I am don't have any home/property to exempt, I am be able to use the whole amount of Homestead Exemption (wildcard) 522(d)(5) to protect other assets within my home, bank accounts, cash in home, and future income tax refunds as long as they do not exceed 11,850.

                But the question is, if I file this month and get a discharge in 3 months... that's before the future income tax refunds, should I not list the 5000.00 in the first place? I guess just to be safe?


                • #9
                  As Des wrote, you would put the amount equal to how much you expect, divided by how many months precede the filing. For example, if you file in August, then you would put (5000/7) * 12 = around $2,920. That's because the bankruptcy estate is created on the day you filed and is only entitled to a percentage of your income tax refund (unless you were filing in December or January or later).

                  People would typically put the description as "anticipated tax refund Tax Year 2017" and the amount of $2,920 and then exempt that amount on Schedule C. (that's just an example)
                  Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
                  Status: (Auto) Discharged and Closed! 5/10
                  Visit My BKForum Blog: justbroke's Blog

                  I am not an attorney. Any advice provided is not legal advice.


                  • #10
                    Got it. Thanks JB!


                    • #11
                      I filed in May, and my attorney had me exempt the entire refund amount, not just 7 months' worth. But I had tons of wildcard room.
                      This post does not constitute legal advice. If you use this advice instead of that of a lawyer, God help you.
                      Filed CH 7: 5/11/17 341: 6/12/17 Discharge: 8/14/17


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