A way to keep tax refund

[Shivers]

I know that most trustee's run off with tax refund checks and I also know its possible to apply any refund toward next years taxes. Wouldn't it therefore make sense to just apply any refund to next years taxes and then reduce next years tax withholding by increasing exemptions which would increase monthly take home. This would essentially allow you to keep your refund; just divided up over the next year. Or just keep applying any refund to the following year and then when your out of Bankruptcy you'd probably have a really nice refund check.

[BKOnce]

America = Freedom of Choice!

[lrprn]

I know that most trustee's run off with tax refund checks and I also know its possible to apply any refund toward next years taxes. Wouldn't it therefore make sense to just apply any refund to next years taxes and then reduce next years tax withholding by increasing exemptions which would increase monthly take home. This would essentially allow you to keep your refund; just divided up over the next year. Or just keep applying any refund to the following year and then when your out of Bankruptcy you'd probably have a really nice refund check.

Here's the hole in your idea...

The money that's refunded to you will contain at least some income that you earned while in bankruptcy. Your trustee is in charge of your financial estate the minute you file. The estate owns whatever portion you earned after you file until you are closed or the year ends, whichever comes first.

The trustee has a right to whatever part of the refund you earned while in bankruptcy and sees it as cash to pay to your creditors. Often folks who file Ch 7 towards the end of the year find their cases prolonged while the trustee waits to see what the refund is going to be and if it's worth going after.

If there's enough there to make it worth his/her effort to get it (typically when the trustee's share is more than $1K), the trustee often will notify the IRS to send the refund check directly to the trustee, not to you. The portion the trustee can take is removed and any that's left is sent on to you.

There's just no free lunch here. Accept it, down the bitter medicine that you may lose part or all of your refund, and move along. It's a small price to pay to wipe out thousands of dollars of debt and get a fresh start.

[just4me]

When you are in the midst of 13 - does the trustee know what your Income taxes reflect if you are not due a refund? We aren't required to submit a copy to our trustee.

Just4me

[lrprn]

When you are in the midst of 13 - does the trustee know what your Income taxes reflect if you are not due a refund? We aren't required to submit a copy to our trustee.

In Ch 13s across the country, there's no consistency AT ALL about how trustees handle income tax refunds. Some want all of it no matter what the amount, some set a limit for how much you can keep and then take anything above it, and a few don't care at all and don't even want to see tax returns.

If yours doesn't care about tax returns or refunds, then count yourself very lucky. You are in a tiny minority of Ch 13ers.

[bmcmull]

I think a copy of the return is sent to the trustee, it would be quite obvious to them you are moving the cash. However in 2005 I lost a return for $4300.00. I then in 2006 filed standard deduction and no child care credits. My return of 1800.00 came to me in the mail as it was under the 2k limit. My plans are to refile an ammended return 3yrs later using itemizes deductions and child care expenses. Probably close to the 3k mark per year as I will do this in 07 as well. The one down fall to this aproach is you can only ammend the reurn up to 3 years, and as it will be scrutinized by the IRS it will have to be buttoned up pretty good. reciepts etc. I plan to ammend the 06, 07, and 08 returns at the same time in 2009 way after the bk is discharged..........

[bmcmull]

I also do not understand why the trustee "prays" anything in the motions filed as they obviously have complete control of our lives while in BK. How it is that they are not governed under one set of rules is beyond me. Each individual trustee has its own set of rules to comply with and the only way you can object to any of these is to hire an atty and fight it in court, problem here being hiring an atty. another 750-1200 on top of the money you never have left to you in the plan. Talk about a catch 22..........

[MajorMike]

In Ch 13s across the country, there's no consistency AT ALL about how trustees handle income tax refunds. Some want all of it no matter what the amount, some set a limit for how much you can keep and then take anything above it, and a few don't care at all and don't even want to see tax returns.

If yours doesn't care about tax returns or refunds, then count yourself very lucky. You are in a tiny minority of Ch 13ers.

We're in the tiny minority!

[Shivers]

I think a copy of the return is sent to the trustee, it would be quite obvious to them you are moving the cash. However in 2005 I lost a return for $4300.00. I then in 2006 filed standard deduction and no child care credits. My return of 1800.00 came to me in the mail as it was under the 2k limit. My plans are to refile an ammended return 3yrs later using itemizes deductions and child care expenses. Probably close to the 3k mark per year as I will do this in 07 as well. The one down fall to this aproach is you can only ammend the reurn up to 3 years, and as it will be scrutinized by the IRS it will have to be buttoned up pretty good. reciepts etc. I plan to ammend the 06, 07, and 08 returns at the same time in 2009 way after the bk is discharged..........

Smart approach... Didn't think of that one.

[CindyLou]

I ammended in 2000 and was audited within 3 months of filing the return!! You can be almost sure that if you ammend....you will be audited or at least sent to the examination department for closere scrutinty. Just be sure you are squeaky clean with your deductions.

What will you put as your reason for ammending, just curious?? I think they do ask on the form.

[upsman4767]

I actually got to keep my entire refund of $5143. Talk about amazing! Oh happy day!

[Flamingo]

I think a copy of the return is sent to the trustee, it would be quite obvious to them you are moving the cash. However in 2005 I lost a return for $4300.00. I then in 2006 filed standard deduction and no child care credits. My return of 1800.00 came to me in the mail as it was under the 2k limit. My plans are to refile an ammended return 3yrs later using itemizes deductions and child care expenses. Probably close to the 3k mark per year as I will do this in 07 as well. The one down fall to this aproach is you can only ammend the reurn up to 3 years, and as it will be scrutinized by the IRS it will have to be buttoned up pretty good. reciepts etc. I plan to ammend the 06, 07, and 08 returns at the same time in 2009 way after the bk is discharged..........

As to your first sentence, that is incorrect. The trustee requests your income tax returns each year to keep track of your income and it doesn't matter who you are or your income level. It's not because they think you are moving cash around. Under the old law providing your tax returns to the trustee was a give and take situation; some trustees required it, others didn't, depending on the state and district. Under the new law, almost everyone is required to provide tax return copies to the trustee within a certain timeperiod from the filing date. Never assume anything as to any finances during a Chapter 13 plan. Always check with your attorney as to your specific situation.

[Flamingo]

I also do not understand why the trustee "prays" anything in the motions filed as they obviously have complete control of our lives while in BK. How it is that they are not governed under one set of rules is beyond me. Each individual trustee has its own set of rules to comply with and the only way you can object to any of these is to hire an atty and fight it in court, problem here being hiring an atty. another 750-1200 on top of the money you never have left to you in the plan. Talk about a catch 22..........

You can thank your State for some of the requirements you fall under.