Tax refund

[325Falcon]

In a chapter 7 does the trustee always have the right to take any fed / state tax refund you may get for the tax year you are filing in?

If so, what if you are a no asset case?

[magyar123]

Really depends when you file....if you file your taxes early, February for example, but also file a Chapter 7 in February and have your 341 hearing in March, they will ask you if you have already filed your taxes and you will have to disclose the refund amounts, if any. The trustee might make arrangements through the courts, the IRS and the state taxing authorities to steal those funds from you. It's a timing thing - file taxes early, February or March, and file bankruptcy later, May or June.
NEVER file your taxes and bankruptcy at the same time.

[325Falcon]

Gotcha!!
We plan on filing November 29.
So I wont do my taxes untill after disharge and closing?

[keepmine]

Gotcha!!
We plan on filing November 29.
So I wont do my taxes untill after disharge and closing?

Whoa! Your tax refund is considered the property of your estate. When you file your tax return is immaterial. Should the trustee want a portion of the refund they'll discharge the case but, not close it until you pay. That way, they don't have to reopen your bk to revoke the discharge.
It just depends on the pratice of the trustees in your district. When I filed, the trustees weren't imnterested in anything under $1500. My refund{s} that year were about $1600 and I got to keep it. Others filing in other districts were not so fortunate.
Ask your lawter how this is handled so you know what to expect.

[JollyGG]

Basically the trustee can take the portion of your tax return earned up to when you file. So if you file in October they are entitled to 10/12 of your return, if you file in November 11/12.

If you want to keep your tax return you need to have an exemption to cover that amount, or it needs to be too small for the trustee to care about.

What you need to do is adjust your withholdings so that you get a very small tax return next year. You need that money in your pocket not in the trustee's. If you look under "links for members" in the general bankruptcy section there is a link to the IRS website that will help you adjust your withholdings to get your tax return as low as possible.

[magyar123]

Gotcha!!
We plan on filing November 29.
So I wont do my taxes untill after disharge and closing?

If you file bankruptcy this November, next month, and you get discharged by February/March - do your taxes in April.
If at the 341 hearing they ask you about the refund you received this year, just tell them it's already spent.
If at the 341 hearing they ask you if you expect any tax refund just say "how the hell would I know, I haven't done them yet, this is still 2007, W2s, etc. will be sent out at the January 2008.

[keepmine]

If at the 341 hearing they ask you if you expect any tax refund just say "how the hell would I know, I haven't done them yet, this is still 2007, W2s, etc. will be sent out at the January 2008.

Not a real good plan. Trustees will have a copy of your prior years return and have a good idea of what sort of refund you'll get.
They may also delay closing your case until they see a copy of your 07 return and decide if they want to pursue a portion of the refund.
I'd also stongly discourage any profanity or flippant remarks to the trustee.

[325Falcon]

My refunds are about $1000 - $1200. I already claim all of my exemptions thoughout the year so I dont know if I can add more. I would like to brake even on the tax refund.

We should have plenty of exemption $$$$ to protect this years tax refund. I did not consider that I could use some exemption $$$$ to protect a tax refund.

This is a great forum!!

[lrprn]

Whoa, everyone...take a step back here.

NOTHING in the current bk law tells trustees what they are to do with tax refunds, so trustees each decide what they think is reasonable to do in the circumstances.

There is NO CONSISTENCY whatsoever across the country in how trustees handle this situation. A few will not take a refund no matter how large it is. Most will take a refund if it's over a certain amount. A few will take any refund no matter how small it is. It's luck of the draw which trustee you get when you file.

Whatever happened to someone else's tax refund here doesn't mean you will have the same experience. Your lawyer will know what to expect with your trustee when you file.

[Bandit]

In other words, Don't count on keeping it. Just because we spend last years refund preBK pretrustee- does not mean we will get to spend this years refund postBK & posttrustee

There is NO CONSISTENCY whatsoever across the country in how trustees handle this situation. A few will not take a refund no matter how large it is. Most will take a refund if it's over a certain amount. A few will take any refund no matter how small it is. It's luck of the draw which trustee you get when you file.

lrprn, It is only for that one year though right? or is it up to 5 years during a 13 that they can keep it?

[lrprn]

lrprn, It is only for that one year though right? or is it up to 5 years during a 13 that they can keep it?

After your filing year, a trustee can take the entire refund every year for the next 2-4 years if that's their custom.

Our Ch 13 trustee told us he will take anything over $2K from our refunds for the four full years we're in our plan. We've been figuring our withholdings VERY carefully this year to make sure we stay under $2K.

Here's a really helpful guide from the IRS on how to calculate your withholdings to control the amount of refund you get back - http://www.irs.gov/pub/irs-pdf/p919.pdf

[325Falcon]

If I can protect any tax refund with the way NH exemptions are written I will be ok.

[WantToBeDebtFre]

I agree with Irprn, check with your attorney. I was worried about losing my tax returns and my attorney said I wouldn't need to worry about it so I think it's different everywhere and depends on the trustee.

[thewife]

Here is another question. I am self employed and also work at a store and very little taxes are taken out of the store paycheck since I am only part time ( 10 hours per week ), and for the self income I do nothing but report it at the end of the year and our refunds are always smaller because of MY income and how I messed it up thoughout the year with NOT having more taxes taken out.

I am filing alone. My hubby is the breadwinner if you can call it that he makes the bulk of the money that we earn. Will they take the whole refund or will they let my hubby keep his part? I am glad to be on the road to a fresh start, but my fresh start is possibly going to screw him out of money that is rightfully his. Does that make sense? I have only made about $8,000 this year and he has made close to $30,000 I think. He wants to put up new gutters since part of ours fell down during the huge ice storm earlier this year.

He is cool with not getting any refund if that means that my stress level will be normal and I will not have to worry so much about putting food on the table, etc.. some weeks. I just hope for HIM that he can get some of the tax refund. We really count on it each year!

p.s. my lawyer DID mention the trustee might take the refund

[lrprn]

Will they take the whole refund or will they let my hubby keep his part?

Since the refund is his and he didn't file, unless you live in a community property state (do you?), your husband keeps his return. If you do live in a community property state, then the trustee could only take up to half of it.

The problem is that you should consider adjusting your withholdings so you don't end up PAYING taxes at the end of the year. Check out this IRS booklet for how to do this so you'll get back very little but won't owe anything - http://www.irs.gov/pub/irs-pdf/p919.pdf . That way there's nothing for the trustee to take