Letter from Trustee

[Clabbergirl]

Thanks

...I was afraid of that.

I couldn't wait any longer to file though, and I couldn't have spent that much money. I already had student loans proceeds I was ploughing through to get to the exemption amount. I guess if I have to pay that much to get out from under this incredible debt, it's a small price. I was hoping to use some of it for an apt deposit. Some of it is earned income credit money...will have to check into that.

[free2breathe]

I'm confused about this somewhat...so many conflicting stories. I'm going to get a refund any day now for 2010, an unusually large one too, considering it's the first time I've ever been able to file Head of Household and have 2 dependents. I thought the you got to keep what you have AFTER you file Chapter 7...but from reading threads about this, that doesn't appear to be the case.

I filed on 3/1/11, and have the 341 meeting on 3/30/11. I used all of the state exemptions (no Fed exemps allowed in TN) so every penny would be over the limit. Should I expect the UST to take every last one?

Anything that is owed to you at the time you file is part of the bankruptcy estate. Because you hadn't received the refund at the time of filing, you may have a trustee who jumps on the refund. The problem is that if you had it coming before you filed, it's part of the estate. If you'd waited to file, got your refund, spent it down on reasonable expenses such as insurance, utilities, food, etc. then you'd probably be ok. Since you are getting a refund that you earned prior to the filing date, it is up for grabs.

Be prepared for the trustee to question the refund and possibly require you to turn it over as an asset. Contact your attorney for solid advice. In some states child tax credit, earned income credit etc. is exempt. Where we are, it's not. We are having to give up roughly 73% of our 2010 refund based on our filing date. We had already received and spent down our 2009 refund at the time we filed our bankruptcy.

[Clabbergirl]

I'm confused about this somewhat...so many conflicting stories. I'm going to get a refund any day now for 2010, an unusually large one too, considering it's the first time I've ever been able to file Head of Household and have 2 dependents. I thought the you got to keep what you have AFTER you file Chapter 7...but from reading threads about this, that doesn't appear to be the case.

I filed on 3/1/11, and have the 341 meeting on 3/30/11. I used all of the state exemptions (no Fed exemps allowed in TN) so every penny would be over the limit. Should I expect the UST to take every last one?

[Egr61]

Is it common practice for the IRS to freeze tax refunds? In what cases does this happen?

[hopeforus]

Ohhhh ok! We are filing soon but not until after filing and getting our insanely high refund. Was freaked about the IRS deal for a second.

[free2breathe]

Why did the IRS freeze your refund? Did you have tax debt?

The IRS froze our refund, because they received notice that we filed bankruptcy. They apparently are waiting for instructions from the trustee. He will either tell them to release the refund to us, so we can turn it over; or he will instruct them to send the refund directly to him. Either way, makes no difference to me ;)

[Snax]

We had our 341 today and the trustee asked us about our anticipated refund. I had already roughed out the large numbers, so I told him about $1800 federal refund, with a prior year federal tax debt of approximately $1000, and another $1500 owed to the state. He declared it a no-asset case moments later.

[hopeforus]

If you filed on May 14th, as your signature implies, then they would be entitled to approx 5/12 of the refund. You can contact your attorney or the trustee's clerk and find out about the 10 days. If nothing else, I would think you should at least respond within the 10 days from the date of his letter explaining that you haven't filed, but that you will forward a copy of your tax return as soon as you file. Make sure you don't ask for a direct deposit of the refund. In our case, the IRS froze our return anyway, so even if we'd chosen direct deposit, it likely wouldn't have happened. Just to be on the safe side, request the refund in a paper check. You will have to send the check to the trustee (ours instructed us not to sign the check before turning it over), and then the trustee will return the amount they aren't entitled to back to you.

Why did the IRS freeze your refund? Did you have tax debt?

[ChaseDidThis]

I don't have to worry anymore. I talked to the trustees office and I am good as far as the 10 days. I need to file my taxes have them mailed to me, turnover the tax forms I file, and my check when I get it, then they will determine if they are going to take any of it depending on how much I get back. Then they will decide if my case is an asset case or a no asset case. If they take part of my refund it will be an asset case, if they don't then it will be a no asset case.

Glad to hear you got it worked out, this all sounds about right. I am curious though, are you discharged? It doesn't seem like they should hold up your discharge for this.

[free2breathe]

KSL - Did you know from the time of your 341 that you would need to turn this over or is this news to you? Is your BK discharged? I'm confused at how they can make this an asset case after discharge?

Also, if a case is discharged and the creditors notified of such, seriously, I have a hard time believing that creditors get any of this money?

Even though the debt is discharged, if there are enough funds available from a tax refund (or an inheritance, life insurance payout, etc.) the trustee will still distribute the money to creditors. What happens is that if the trustee comes upon funds available to distribute, a new notice will go out to creditors giving them time to file a claim. If any of the creditors do file a claim, the trustee will distribute the funds. The trustees are bound by law to distribute funds to the creditors who file claims, if such funds exist. They have to account for every penny that finds its way into the bankruptcy estate as an asset.

[KSL]

Not at my 341 meeting, it wasn't mentioned. My attorney had mentioned it at some point that the trustee could take a portion of my tax refund. After my 341 meeting my attorney said he wouldn't know if my case was an asset case or a no asset case until he found out if the trustee takes part of my refund. My attorney thought it would go as a no asset case though. It sounds like depending on what a persons refund is, depends on if it's a no asset case or not. If the portion of your refund that has to be turned over to the trustee is $1000 or more than it will be an asset case.

So if your refund is $4000.00 and you filed half way through the year, then the trustee can take half of that, which is $2000.00 and turn it into an asset case.

[csonly]

KSL - Did you know from the time of your 341 that you would need to turn this over or is this news to you? Is your BK discharged? I'm confused at how they can make this an asset case after discharge?

Also, if a case is discharged and the creditors notified of such, seriously, I have a hard time believing that creditors get any of this money?

[KSL]

I don't have to worry anymore. I talked to the trustees office and I am good as far as the 10 days. I need to file my taxes have them mailed to me, turnover the tax forms I file, and my check when I get it, then they will determine if they are going to take any of it depending on how much I get back. Then they will decide if my case is an asset case or a no asset case. If they take part of my refund it will be an asset case, if they don't then it will be a no asset case.

[backtoschool]

Many districts require income tax refunds to be turned over, if they are not specifically exempted. I would assume that the trustee is asking you to turn over the refund ten days from getting it, or that the trustee is referring to last year's refund.

[LadyInTheRed]

That leads me to a few more questions? Why would the Trustee want your refund? Do they just do this for the year you filed or for years to come?? What do they do with the refund in a 7 since there is no repayment plan?

It's only for the year you filed, or for prior years' refunds that you haven't yet received at the time of filing. If you receive a refund for the year in which you filed, at least part of it is probably a refund of money that was withheld from your paycheck before you filed BK. So, at the time of filing the refund was an asset. If you can't exempt it, it is available for distribution to your creditors.

Our "panel" trustee did not ask for our refund, but the UST may be a different story. I have no clue what to expect. I was under the impression that you only lose your tax refund if you do a 13. Can we get more input on this subject.

Some Chap 13 plans require all tax refunds received during the length of the plan to be turned over to the trustee because the amount withheld was a deduction from DMI. So, if the Chap 13 debtor gets a refund, that is additional income that should go to the creditors. This keeps a Chap 13 debtor from inflating his withholding just to lower his plan payment.[/QUOTE]

Also, I hear wildcard a lot on this forum. What is that?

Some states have wild card exemptions of a certain dollar amount that can be used for any property that isn't covered by other exemptions. For example, if you have a car worth more than the automobile exemption, you can apply the wildcard exemption to the car. Or, if you have an asset for which there is no exemption at all, you can cover it with the wildcard.