Tax Refund

[dakota112]

If you are filing for CH 7 Jan 2010 and may have to give up to the trustee any refund may have had on Federal return, do they allow you to keep the amount you underpaid to both the State and City for 2009 so as to be able to pay them and not have this debt going forward?

[JoeBankrupt33]

Not in my case. I filed early Feb 09, and my federal refund was about $1600. He told me to hand it over. I asked if I could keep it and pay toward my State tax of $1750, and he said no. Instead, I added the state tax to my petition so they would be my only priority creditor. Tough part here, though: I don't know what the trustee is waiting for, but he hasn't filed his distribution report yet and he hasn't paid the state anything. Because they haven't been paid, the state has been on me and threatened a judgement, so I had to set up a payment plan.

It's been a real pain. Maybe your trustee will be more accepting. I recommend getting your refund then paying your state/local taxes before filing bk. This is one case where I don't think you'll get in trouble for preferential payments to unsecured creditors.

[dakota112]

Thanks for the reply. Wow if that is how they are potentially going to handle this I may just delay the filing long enough to try to get that check in my hand and pay off my taxes. Are you in a CH 13 plan?

[Notes4fr]

My attorney listed anticipated 2009 tax refund as an exempt asset (I don't remember if it was part of the "wild-card" or not, just that it was listed).

[JoeBankrupt33]

Thanks for the reply. Wow if that is how they are potentially going to handle this I may just delay the filing long enough to try to get that check in my hand and pay off my taxes. Are you in a CH 13 plan?

I'm not in CH13. I'm in CO, where the tax refund is not exempt (in most cases). If you can cover it with an exemption, you won't have much to worry about.