Used my Tax Refund to Pay Creditors

[kls4c]

I haven't retained an attorney or filed yet, I wasn't even considering bankruptcy until I started researching the net very recently.

I received my tax refunds in early February. I received $2400 in federal refund, this is larger than I normally get, but has to do with mortgages (rental prop) as I purchased prop last year. I borrowed $1200 to pay a mortgage payment and paid it back, I used another $800+ to pay credit cards. I was trying to do everything I could to make payments.

I've wondering if that was a mistake, also, I've been looking to see if I'm reviewed under the means test will the tax refund be included as income, even if I can show that I paid my creditors?

Also I see a lot about Federal taxes, but what about State Taxes.

[JRScott]

Just keep receipts as to what you spent it on. If you spent it to pay creditors as you say I don't see any real problems. When do you plan to file?

[2Bshinyandnew]

I haven't retained an attorney or filed yet, I wasn't even considering bankruptcy until I started researching the net very recently.

I received my tax refunds in early February. I received $2400 in federal refund, this is larger than I normally get, but has to do with mortgages (rental prop) as I purchased prop last year. I borrowed $1200 to pay a mortgage payment and paid it back, I used another $800+ to pay credit cards. I was trying to do everything I could to make payments.

I've wondering if that was a mistake, also, I've been looking to see if I'm reviewed under the means test will the tax refund be included as income, even if I can show that I paid my creditors?

Also I see a lot about Federal taxes, but what about State Taxes.

As JRScott said above, keep receipts and records for everything.

Your tax refund is not counted as income for the means test. It may be counted as an asset, in part or in its entirety the same way money in a checking/savings account would be.

If you are concerned about paying a creditor close to filing, unless you paid back money to an "insider" which is a friend or relative, you need not worry.

If the $1200 you paid back was to a friend or relative, it could be a problem in that once a debtor files BK, all creditors, depending on their status, are equal (that sounds like a contradiction, but it's not A creditors status is determined by whether they are secured, ie: a mortgage or car loan, or unsecured, ie: credit cards, lines of credit. An unsecured creditor can also have priority status, meaning they get paid before everyone else, ie: IRS, child support/alimony.

If the $1200 you paid back was to a relative, it could be a problem because after you file, the trustee is going to look at all the recent payments made <$600 and if one creditor was paid before the others the trustee is going to get that money back and redistribute it according to the status and priority of all your creditors.

If you paid Citibank the $1200 you aren't going to really care what goes on behind the scenes. For instance if the trustee goes to Citibank and says, "hey, give that $1200 back, the debtor filed a BK", you aren't going to care and your bankruptcy petition won't be affected at all. HOWEVER; If the $1200 went to your sibling/friend/parent, that will be problematic for you, for obvious reasons. Your petition won't be jeopardized, but relationships with your family may be. In situations such as this, a debtor may have the option of bargaining with the trustee and offering to pay that money to the trustee yourself, which would mean you paid it twice.

You can wait until the look-back period is up, I think it is a year? on insider preferential payments. Hopefully, the $1200 was not to a friend/relative.

[kls4c]

Wow I had no idea of that. So they look at one year of bank statements?

[JRScott]

Yes they actually can even ask for more if they decide its warranted. Many UST if they become involved want 2 years statements....