Question about wildcard in Ohio

[justbroke]

I agree. It's the amount on the date that you filed, not the amount of the refund. You would then attempt to exempt as much of the refund as possible using exemptions. Whatever is not protected by exemptions, becomes an asset of the Estate.

[LadyInTheRed]

The refund was received before the petition was filed, so it was partially used on household expenses as well as for the filing. The trustee doesn't care what we had when we filed, he only cares about the amount of the tax refund itself. Does that make more sense? The trustee is going after the total amount - DHs wildcard - EIC - child tax credit. My argument is that our lawyer should be arguing that either he look at the amount on the day we filed and minus the wildcard, EIC and child tax credit OR the total refund - expenses that should be allowed - DHs wildcare - EIC - child tax credit. Either way, there would be nothing for him to take, as either way our exemptions would cover the amount.

In that case, the cash you had on the day of filing is what should be subject to exemption. The amount of the refund is irrelevant. What is relevant is how much of the refund you had left on the date of your filing. This is pretty basic and your attorney should definitely fight the trustee.

Was the refund listed on your petition or was cash listed on your petition?

[bk2009]

The refund was received before the petition was filed, so it was partially used on household expenses as well as for the filing. The trustee doesn't care what we had when we filed, he only cares about the amount of the tax refund itself. Does that make more sense? The trustee is going after the total amount - DHs wildcard - EIC - child tax credit. My argument is that our lawyer should be arguing that either he look at the amount on the day we filed and minus the wildcard, EIC and child tax credit OR the total refund - expenses that should be allowed - DHs wildcare - EIC - child tax credit. Either way, there would be nothing for him to take, as either way our exemptions would cover the amount.

[LadyInTheRed]

I've been assuming the refund was received after the petition was filed. But I see now that BK2009 hasn't actually said that. I agree with you, JB, that the trustee can't go after money spent before filing (unless there was an avoidable transfer which doesn't seem to be the issue).

[justbroke]

LITR touches on something important. If there was anything left over from the tax refund on the day that you filed, that is probably the issue. I can see a subtle distinction in what you "could" have exempted, but the Trustee may have a point. If your refund as $X and you spent $Y before you filed, then $Z is left. You can't simply apply the exemption to $Z. I believe the Trustee is saying that the exemption should be $E, so the Trustee wants $X - $E (that residual/leftover amount).

But, I do have trouble with the Trustee and basing the exemption on money you already spent before filing (if that's the case). I believe the Trustee should be going after $Z after your exemptions (so $Z -$E)... if that makes any sense.

Otherwise, it is confusing.

[LadyInTheRed]

bk2009, what you spent the refund on is irrelevant. It was an asset on the day you filed and must be exempted or turned over to the trustee. There is nothing your attorney can do to change the fact that your case is an asset case. The best he can do is to compensate you for his bad advice.

[bk2009]

I received a letter from the trustee on Friday. He wants the remaining amount of the tax refund, after the EIC and child tax credits and my husband's exemptions. The lawyer hasn't even tried to show that we spent it on legitimate things - ie HIM and household bills that we were catching up. The attorney fees alone negate any possible balance. I have emailed him that he needs to get off his duff - in nice, polite terms. ;) Pointing out that he advised us that both me and my husband were able to use the wildcard exemption for the tax refund and that he was wrong about that, but that is why we hired him. Additionally, I have told him that he needs to point out that we paid him and spent it on legitimate expenses - so he needs to get to work and get the trustee to see that we don't owe anything.

Late this week he was still trying to sell it as a great deal. I'm sorry, it's not. I want a nice, open and closed case, I don't want an asset case, I want a non-asset case, so he needs to get to work on this. I expect this.

[justbroke]

LITR, excellent observation. I knew someone would catch me!

[LadyInTheRed]

The only issue I see is that the attorneys advice would not have mattered, unless the debtor waited another year, spent their refund, and then filed.

But, I think it does matter when the petition was filed early in the year. The debtor would not have had to wait another year. The attorney told the debtor that his 2012 refund would be exempt. If he told him it wasn't exempt, the debtor could have delayed his BK filing, filed is tax return, got the refund and spent it on attorney fees and necessary expenses. Depending on the size of the refund, that could have happened in the first 6 months of the year. Assuming similar withholding and tax liability in both years, the 2013 refund at the time of filing would be a smaller asset to either exempt or turn over to the trustee. There is the issue of whether the refund received within 6 months of filing would be income that would cause the debtor to fail the means test.

We don't have all the facts to know whether the incorrect advice caused harm to the debtor. But, it is possible that it did. I don't think this is worth a malpractice lawsuit. But, if I were the debtor, I would request some compensation, starting by requesting the entire amount that has to be paid to the trustee and hoping to at least settle at a lower amount. I'd probably wait until after discharge.

[justbroke]

The only issue I see is that the attorneys advice would not have mattered, unless the debtor waited another year, spent their refund, and then filed. Sometimes, it just is what it is upon filing. In many cases, it also depends on just which Trustee you get! (I can speak from experience in Florida where we have very aggressive Chapter 7 Panel Trustees and some that are very caring and understanding. However, they still apply the law as it is. Some are just more savvy at obtaining "property" for the Estate for distribution! For example... the so-called "carve out" for underwater homes!)

[LadyInTheRed]

He specifically pointed out that I would be able to claim the exemption, but now he's trying to weasle out of that.

It sounds like he was wrong, which he has acknowledged. So, now you have two issues: How you are going to handle the fact that you need to pay the money to the trustee and how your are going to deal with the fact that your attorney gave you incorrect advice. Sounds like you need to have a frank (but polite) conversation with the attorney letting him know that you believe you were harmed by the incorrect advice.

[justbroke]

Very interesting. The decision was based on underlying Ohio dissolution laws which are about property in a dissolution. I am glad I'm not an attorney because I don't know how they jumped "there" to find that the non-working spouse has no entitlement to any part of the refund. Albeit strange, it is an interesting case (Gazvoda 10-20715-aih). It is definitely a very thought out case (in Gazvoda) on marital property rights.

As LITR wrote, it would appear that your husband does not have enough exemptions to cover the entire refund. I thought they were only going after your "portion" of the refund, but you are joint bankruptcy filers. In that case, they are attacking the exemptions applied and you (based on Gazvoda) are not entitled to an exemption on the (working) spouse's property.

I thought Florida was tough!

[bk2009]

He specifically pointed out that I would be able to claim the exemption, but now he's trying to weasle out of that.

[LadyInTheRed]

That makes it more clear. The issue is not that you are unemployed. It is that the tax refund is a refund of your husband's earnings and therefore belongs to him since you are not in a community property state. Your husband has a $425 cash exemption and a $1150 wildcard exemtpion. Either the refund is more than $1,575, or at least a portion of your husband's exemptions were used on his other property. It sounds like the trustee is right.

But, the lawyer is trying say his error did not harm you because your 2013 refund would have been an issue if you waited to file. Not a very good argument. If you waited to file BK until you received your 2012 refund, you could have spent it and still been able to file pretty early in 2013. So, you might have only 6 months or less worth of refund as an asset instead of an entire year.

[bk2009]

Our lawyers latest response to us:

"Joint debtors, such as you and Jen, are entitled to $850 exemption for cash on hand. You are getting your $425 exemption in the refund and you are getting your $1,150 exemption in the refund.

(XXXXX) cannot take an exemption in property in which she has not requisite property interest. She can't take the $425 or the $1,150 exemption in the tax refund because she didn't earn the income from which the refund was derived. The trustee appears to be right and I was wrong. There is a case that discusses the issue, In re Gazvoda out of the N. Dist. of Ohio. It says "Even if spouses jointly file tax a return in order to enhance the tax refund and also jointly file a bankruptcy petition, the tax refund remains the property of the wage earning spouse. Only the spouse whose over-withheld earnings resulted in the refund has the requisite property interest to claim exemptions in that refund." We would have had to deal with this issue whether we waited to file or not. That is, unless you waited until next year to file. At that point, we would be potentially dealing with 2013 tax refund. Tax refunds are a tough issue to navigate. I've seen some people lose all of their tax return because they don't have any EIC or Addl. child tax credit."

He goes on to say that we used the amount in question for certain expenses but maintains that we should just pay it if push comes to shove. I think that is BS as it was his mistake.

He does practice more than just BK, but he gave all the same answers as the other place (big BK firm) and we liked that we actually met and talked with him, instead of a paralegal.