Tax refund and bankruptcy

[Tora]

Hi there, just wondering if anyone here could offer some insight.

Filed for ch7 in early January, 341 meeting will be in mid February.  I will be filing taxes for 2010 as married filing jointly.  Will the trustee automatically demand 100% of my refund to be forfeited, a portion of it to be forfeited (because I am filing married filing jointly), or require none of it to be forfeited?

If it matters, I filed for ch7 in Florida.

Thanks!

[carolina98]

Thank you so much for bringing this up! I have a meeting scheduled for tomorrow with my BK attorney to file right away. I also have itemized my taxes and expect an $800 refund when I file my taxes on Feb. 14. The IRS, as you know, is not taking itemized returns until Feb. 14 due to issues updating its system. I have to consider this. Thank you! See below.

It looks like you can lose your refund, but, may be saved by an exemption. Please see these posts for help.

11.  "Will I be able to keep my tax refund?"

Tax refunds are assets of your bankruptcy estate and are not exempt, so probably not. However, under the federal exemptions, if the equity value of your home is low enough, you can exempt up to about $9,000 worth of any property, including cash from a tax refund.

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see federal exemptions here:  [Edited]

more here

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I'm sorry but links to specific BK attorneys are not allowed. You can exchange this information via PM's.

Marinevietvet, myFICO moderator 

[Tora]

If you don't mind, can you post what your attorney says about the taxes?

I didn't know the IRS isn't accepting itemized filings before 2/14.  I itemized mine, and e-filed it through taxact tonight.  I wonder if it will just sit in a queue until 2/14 or if the IRS will just reject it and have me re-submit it after 2/14.

I'll call my attorney tomorrow and see what he has to say about my tax refund.

[carolina98]

I'll email you links so you can also see the federal exemptions, which can apply to tax returns.

Yes, IRS will not process your return until Feb. 14 if you did a Schedule A itemizing or did a few other things. Apparently Congress made changes to tax law late in 2010 and IRS systems are not updated to deal with new tax regulations.

[carolina98]

I used a free online tax service and when I got ready to file it said it would sit on its system until IRS accepted returns on 2/14. I checked further and see lots of information on itemized returns not being accepted  by IRS until then. I chose to sit on mine and will file when IRS starts accepting those returns. My BK filing will now influence when I file both.

[tunseeker1]

They will look at the date you filed and keep the percentage of the refund equal to the percentage of the year before filing unless you have not used all you exempt monies, and they will not offset the refund with any outstanding taxes owed.

[carolina98]

They will look at the date you filed and keep the percentage of the refund equal to the percentage of the year before filing unless you have not used all you exempt monies, and they will not offset the refund with any outstanding taxes owed.

I'm sorry, but I didn't understand your post. Could you please clarify ? Thank you!

[Tora]

Well, I had my 341 meeting today and also brought this tax issue up again with my attorney just prior to the meeting.  I brought it up to him when I started this thread, but I am one of those "retentively stress about everything" kind of guys.  The answer to this issue, much like any other issue in a bankruptcy is a general "depends."  In my case, I had enough room left in my exemptions to allow me to keep all of my tax refund.

On another note, I was surprised at how quick and non-adversarial the 341 meeting was.  Once it was my turn I think I was questioned for less than 5 minutes.  The questions were all the same questions my attorney asked me when I filed, so there were no surprises.  No creditors were present.  I would definitely say the anticipation of the meeting and my imagination was much worse than the actual meeting itself. 

Now I just wait for the disposition then I'm off to the road of credit recovery!

[carolina98]

Congratulations! I'm so glad all went so well. It's great to hear about your tax refund. I hope all goes smoothly as you move to put things back on track. I think you'll be highly successful at doing it and recovering from this challenging circumstance.