Just Another Reminder About Increasing Your W-4 Exemptions After Your 341

[Chowder]

Construed. As in interpreted.

This has been litigated to death.

No doubt. Proving that it can be construed as fraudulent.

[justbroke]

So I had my 341 in August, so this means that next years tax return will be taken away ? ( the one that pays me in February) ??? even my child tax credit & and earned income credit ? plz help me understand

Earned Income Credit is specifically protected.

As for whether your Trustee requires it, or whether your Attorney didn't already either include it in your income (CMI) or exempt it... is a question for your Attorney.

[justbroke]

No doubt. Proving that it can be construed as fraudulent.

There are rarely any cases now. Many came post-BAPCPA on whether Attorneys were "Debt Relief Agencies" or not... The "real" fraud cases, are really based on fraud... I think was my point. The post-BAPCPA mess was just really a bad time for law firms. Having to add stupid disclaimers that they are a "debt relief agency" and then being beat up by the U.S. Trustee saying that they committed fraud for telling their clients to incur debt on the eve of bankruptcy. Just bad times. Luckily, that nonsense is over. (Although it is headed to the Supreme Court.)

The mere act of filing for bankruptcy can be construed as not wanting to pay your creditors. I leave that for creditors to actually file complaints and submit their evidence.

[Chowder]

The mere act of filing for bankruptcy can be construed as not wanting to pay your creditors.

Agreed.

[Bell30656]

Isn't this only the case if your bankruptcy has not been CLOSED? My bankruptcy was filed in 2008 but 341 and discharge/closing was in early 2009. My tax return will be for taxes withheld in 2009 not assets prior to the bankruptcy.

I disagree with the belief that changing your number of withholdings AFTER the 341 in any way constitutes fraud. The purpose of tax withholding is to insure that enough withholding occurs to pay your tax owed each year. If you are withholding too much then you should always change your withholding to withhold less.

Any money put in AFTER your BK is filed is just that money you put in after you declared bankruptcy. Anything paid in prior to the BK being filed? Should be fair game for the trustee to recover.

When you miscalculate your withholding all you are doing is giving the US Govt an interest free loan.

[danaf]

Justbroke - I really think you are taking this to the extreme. Hiding assets is one thing. I hardly view adjusting your W4 as hiding assets when your salary is there in black and white for the trustee to see. Over paying is just giving the gov. an interest free loan and giving the trustee an opportunity to seize if they want.

I never ever said anything about purposefully withholding more prior to filing, and then adjusting to withhold less afterwards. I too consider that fraudulent and dangerous and would not recommend (so I’m glad you brought that up). But, please don’t mix my words.

My post was meant for those that filed with their normal exemptions and who might be paying more than they have to. And also for those who may not realize that many trustees want those returns and are allowed to seize them. Why in the world let the trustee have that money? I can honestly say that before bk, I never realized that I was giving the gov. a free loan. I learned a lot about money and budgeting during my bk process that I had never known. You may not mind paying one of your tax returns to get out from under and I have no doubt you would for you are repaying a very expensive 13, but for many of us that just squeak by, the thought of the trustee being entitled to our tax returns is a very hard pill to swallow.

If it was fraudulent, then no doubt my trustee would have had me on the carpet and re-opened my case. And also, if it were truly fraudulent, no doubt the mods on this board would have chimed in as this isn’t the first time I’ve posted about this.

I don’t view the “system” as “we the people” much anymore. The last bk reform tried to make it more difficult for people to file. Lawmakers are totally out of control and don’t even listen to their constituents anymore. I am sickened at all the ridiculous bills that get pushed through due to anything but what “we the people” or the constituents want.

Private student loans are a good example. In the new (now old) bk reform, lobbyists for lenders such as Sallie Mae got congress to treat private loans for education the same as government loans for education. This meant they could no longer be bk’d. At the same time though, these private loan lenders can charge whatever they want for interest and for a lot of years, they didn’t act the same as government student loans….i.e. they wouldn’t allow forbearance in the event of job loss, or deferment in the case of continued education. I hardly doubt “we the people” voted for this. It was conveniently slipped in unbeknownst to many and is to no benefit of any constituent, only Sallie Mae and other private lenders.

I think your view is alarmist and unnecessarily scaring people away from potentially useful information. If I recall, when I was going through my bk and posting more often, many experts & mods used to post that what matters is your finances up to the day you file and your 341…..after that…it’s ok for example to get a job that makes more, or take in more over time hours, etc. And at the end of the day, that is the point of bk…..to get out from under so you can do better financially in the future. I consider this budget tweaking and a useful tactic so that people’s hard-earned money is not just flittered away just when they thought they were done with their bk.

Another thing they can do is exempt their tax returns. I was unaware of this option at the time and upon learning that the trustee would want my returns, I explored and did adjust my W4 after my 341. I didn’t feel I was doing anything wrong….didn’t feel the least bit guilty….didn’t feel like I had committed fraud. The trustee had all of my documentation. I didn’t hide anything. I complied and sent the trustee my returns. All I did was take the necessary steps to make sure that more of my hard earned dollars stayed in my pocket and stopped giving the gov. a free loan. In doing this, the trustee had less opportunity to administer and dole out my returns (which by the way, I'm sure they take a % off the top).

The CH7 members don't have to take my word for it. They are more than welcome to do their own research, inquire with their attorneys, and make their own decisions based on what they think is best for them. I just posted what I feel is useful information.

[justbroke]

Isn't this only the case if your bankruptcy has not been CLOSED? My bankruptcy was filed in 2008 but 341 and discharge/closing was in early 2009. My tax return will be for taxes withheld in 2009 not assets prior to the bankruptcy.

No, fraud can be brought up to 2 years for a UST, but this is all academic talk anyhow. IF your Trustee wanted taxes in your particular case, it would have been for 2008 overwithholdings for which you filed for and received a refund in 2009.

I disagree with the belief that changing your number of withholdings AFTER the 341 in any way constitutes fraud.

Actually, I never said that it was. I said that hiding assets of the Bankruptcy Estate constitutes fraud.

Any money put in AFTER your BK is filed is just that money you put in after you declared bankruptcy. Anything paid in prior to the BK being filed? Should be fair game for the trustee to recover.

Ah, but that's the issue. What is property of the Bankruptcy Estate. If the Trustee attaches part or all of your so-called tax overwithholdings (in the current year), then that money is property of the Bankruptcy Estate. To intentionally manipulate the withholding value on your tax return, after having reported a different number on your schedule, is hiding money from the Bankruptcy Estate.

When you miscalculate your withholding all you are doing is giving the US Govt an interest free loan.

When you purposefully inflate your wuithholdings so that you pass the means test or otherwise hide money from the United States Trustee (and U.S. Bankruptcy Court), then reduce the withholding right after the 341 Meeting to "recover" that money... you have just materially committed fraud by every known definition.

Will you get caught? More than likely, not.

[justbroke]

Justbroke - I really think you are taking this to the extreme. Hiding assets is one thing. I hardly view adjusting your W4 as hiding assets when your salary is there in black and white for the trustee to see.

I said it was just for fun and an academic discussion.

I never indicated or even suggested that adjusting your W-4 numbers in and of itself was fraud. However, I'll repeat what I wrote, in different words. If you manipulate the numbers on your Schedules to pass the means test by pushing you under the median, make your numbers "work", or simply hiding income, by manipulating your tax withholdings intentionally... that is fraud.

By suggesting that after the Meeting of Creditors, the person who listed a number which they knew was a reflection of an overwithholding, to change that number after the Meeting of Creditors, is to suggest them to hide money from the Estate.

I'm not even being extreme, really. I never even talked about getting caught or the penalty for the same. I was only saying that to intentionally do so, was fraud.

I never ever said anything about purposefully withholding more prior to filing, and then adjusting to withhold less afterwards. I too consider that fraudulent and dangerous and would not recommend (so I’m glad you brought that up). But, please don’t mix my words.

This was the thrust and question of the entire thread, so I am keeping it in perspective of the topic. You specifically wrote...

Most trustees want your tax returns and will go after them when you file your tax returns...

What the Trustee wants is property of the Bankruptcy Estate. You write this as though there is an entitlement to that tax refund which is a overwithholding of your money. It's as if it's in the Bank and waiting for you. Since it's in the bank, at the time you filed, it is property of the Bankruptcy Estate.

Perhaps no one understands it the way I do, and from me reading so many cases where it was explained in nauseating detail. You further clarify why I made my post because you continue to insist...

Why in the world let the trustee have that money?

The point is... it's not your money, it's property of the Bankruptcy Estate. Either you or your attorney should have exempted it, or a portion of it based on when you filed (pro-rated).

If it was fraudulent, then no doubt my trustee would have had me on the carpet and re-opened my case. And also, if it were truly fraudulent, no doubt the mods on this board would have chimed in as this isn’t the first time I’ve posted about this.

Well... I'm not a moderator, but let me tell you that to intentionally manipulate your schedules, so as to receive a discharge under any chapter of Title 11, or to hide money from the Bankruptcy Estate, is fraud. The moderators don't read ever single thread. I don't even read every single thread.

Now the U.S. Trustee's office will, itself tell you that they can not monitor every single case. They will continue to tell you that they cannot police everything and take the professional word of attorneys and those who sign and execute documents... under penalty of perjury. Is the U.S. Trustee's office looking for this particular practice? Not actively.

Here's the 10th Circuit's view on this...

Hiding Income Through Excessive Tax Withholding

As an important matter of public policy, the BAP in this case also pointed out that adopting the Midkiffs’ proposed rule would allow debtors to manipulate their tax returns to hide income... [t]hat is, by withholding excessive amounts of money from their paychecks Midkiff, 271 B.R. at 388.

I see a clear distinction. Unfortunately, many people don't and I would hope that the honest people don't get caught doing this.

[debtmonster]

What about us folks who don't have W-4's? I pay my taxes quarterly on my own and all of my income is 1099 income. I can mail in as much or as little as I feel like it. The thing is, if I owe more than $500 by April 15th, then there's penalties slapped onto my tax return.

[OhioFiler]

Our attorney sent us a letter specifically advising us we should adjust our W-4 exemptions now to avoid a possible refund next year. I doubt they would be recommending we commit fraud.

Any TT worth his salt would look at the most recent tax return NOT the paystub deductions to determine what a petitioner's actual monthly tax liability is for Schedule I.

I will not be paying our TT any money next spring. We will not be receiving a non-exempt tax refund. If I see a mistake on my 2009 return I can always amend it in 2010 or 2011.

[shabam]

I don’t view the “system” as “we the people” much anymore. The last bk reform tried to make it more difficult for people to file. Lawmakers are totally out of control and don’t even listen to their constituents anymore. I am sickened at all the ridiculous bills that get pushed through due to anything but what “we the people” or the constituents want.

[justbroke]

Our attorney sent us a letter specifically advising us we should adjust our W-4 exemptions now to avoid a possible refund next year. I doubt they would be recommending we commit fraud.

You are probably in a District where the UST requires your attorney to include your current year's refund as "income" on your Schedule I. Many of the Districts do this in order to factor the refund. Your attorney having you reduce it in this instance, is not fraud, because the refund was already factored.

Any TT worth his salt would look at the most recent tax return NOT the paystub deductions to determine what a petitioner's actual monthly tax liability is for Schedule I.

I believe that Ohio requires the debtor to include the current year refund as Income, so the Trustee only needs to see that it was included as Income on Schedule I. All Trustees are not created equal. Some are just plain mean. Most are middle of the road (more balanced). And some are pushovers. Sometimes it's just the luck of the draw.

[justbroke]

I agree. However, the discussion point is academic, not on whether the system is fair, but whether purposefully manipulating numbers to hide assets, is in fact fraud.

I think I even said earlier that the system isn't perfect (not in those exact words). I specifically don't like the means test and the lookback, which is what I posted. However, my reason for defending this side of the argument was plainly to see where we (as debtors) draw the line.

Unfortunately, I'm amongst the few who believe we do have control, although it's a "lagging" control We can vote out these same people who have been in Congress for 20 or even 30 years. Yet, "We, The People" keep voting them back. The health care reform issue is probably one of the first that the people have actually stuck their noses in, tried to participate, and forced the republicrats to actually come and talk to their constituents. We need more of that.

[liboton21]

What about if the refund is for the property tax payment? If UST took it put, how will I pay the property?

[adviceplease]

Our lawyer said that they can exempt this years up coming tax return is this true?