tax refund question (long)

[unearthed]

I now know more about chapter 13 bankruptcy than I ever wanted to and still the questions continue to come.

We are a family of six (four boys--three of them teenagers) and my husband is a factory worker. Though I worked with other people's kids for several years (I was a youth worker for the Extension), I'm currently home finishing up homeschooling three of our four. We fall below the means line for the state of Missouri.

We've had our 341 meeting. At this point our date for confirmation of plan is in early March. Most of our creditors have filed claims--most of them bought up by a single "junk debt purchaser".

As you might imagine, with four kids (all boys) our tax refund could come in terribly useful for serious and expensive dental work (3600 for just one mouth!). Because we've sought to keep more than $2500 of it our lawyer filed a motion with the court. Our tax refund should be in later this week (barring further delays on the part of the IRS) and my lawyer's office now tells us that we are required to send him our tax refund so he can keep it in escrow for us until the motion is granted or denied. I cannot tell you how uncomfortable I am with handing what is to me a great deal of money over to someone who just promises to keep it safe for us.

I can't find ANY information about this anywhere on the legal sites concerning bankruptcy in the Western District of Missouri (anywhere, actually). Anybody know anything about this? Are we required by law to do this?

[Tbornetun]

I am wondering why you feel the need to pay back part of the debt if you qualify for a Chapter 7? Doesn't make sense to me.

[Flamingo]

Since you've already filed, your financial estate is under the control of the Trustee so you need to comply with whatever you are told to do or else risk dismissal. Since you are requesting funds for a very necessary reason, the odds are in your favor you will be able to keep a portion, if not all, of your refund, depending on the amount of the refund. Do you have dental insurance? That could be a help if you do. Ortho usually has a certain amount available for coverage up to 50% of the total (i.e., $2,000 on a $4,000 bill, plus any deductable) depending on the Plan.

[unearthed]

Thank you for replying.

Frighteningly enough that $3600 is after the dental insurance. Our limit is up to a $1000 a year per person. Normal cleanings, check ups, teeth sealing, etc is free. It's Delta Dental Premier through my husband's employer and (also sadly) in this part of the country it's one of the better dental plans I've seen. A $2000 limit would certainly be nice.

The lawyer is the one who wants to keep our refund in escrow, not the trustee. It would make sense to me if the trustee wanted to keep it.

[rrockinggramma]

I believe that your attorney is just trying to ensure that you don't spend it until the motion is granted or denied. Perhaps you and your attorney could set up a joint account to put the money in that requires both signatures to get it out.

[Flamingo]

Thank you for replying.

Frighteningly enough that $3600 is after the dental insurance. Our limit is up to a $1000 a year per person. It's Delta Dental Premier through my husband's employer.

The lawyer is the one who wants to keep our refund in escrow, not the trustee. It would make sense to me if the trustee wanted to keep it.

It may be required of the attorney to do that (the way your posting is worded it appeared your attorney asked for this after filing the Motion so I thought the trustee may have asked for it to be kept in escrow). In any event, what your attorney is trying to do (or has to do) is ensure the refund is available if it needs to be turned over to the Trustee which won't be determined until the Motion is granted or denied. If it was spent and required to be turned over, you can see the issues that would arise.

You may want to check with your attorney now as to any future refunds you may receive so you don't have to go through this every year or ask him if you can adjust your tax exemptions to reduce the amount of any refund.

[unearthed]

Thank you both. I simply couldn't find any reference to this being required by law anywhere I searched. I suppose just filing bankruptcy, for whatever reason (temporary unemployment and drop in income after taking a new job being our primary reasons for falling behind) you must be considered someone without much self control. I understand their concern, though the prospect of committing a federal offense would scare me into leaving it alone.

The primary reason our tax refund is so large is the child tax credit, which I suppose we could always just not claim. If they decide to keep our refund this year perhaps I'll consider that in the future.

I think it's interesting that the lawyer who will be holding this money in escrow will be able to collect interest on it while he has it.

[Flamingo]

Thank you both. I simply couldn't find any reference to this being required by law anywhere I searched. I suppose just filing bankruptcy, for whatever reason (temporary unemployment and drop in income after taking a new job being our primary reasons for falling behind) you must be considered someone without much self control. I understand their concern, though the prospect of committing a federal offense would scare me into leaving it alone.

The primary reason our tax refund is so large is the child tax credit, which I suppose we could always just not claim. If they decide to keep our refund this year perhaps I'll consider that in the future.

I think it's interesting that the lawyer who will be holding this money in escrow will be able to collect interest on it while he has it.

The Motion for this should take no more than a few months or less to go through depending on how busy the Court is so what your attorney will do is hold your amount in his escrow account (you will sign the check over to him and he will deposit it). Attorneys' escrow accounts for clients are non-interest bearing checking accounts. He cannot collect interest on clients' funds.

[fltoo]

Did the lawyer SAY he was collecting interest on the account?

If the amount is substantial the attorney can put the money in an interest bearing account paying you the interest. It is against his code of ethics for him to collect the interest.

If it is nominal, interest can be collected on all monies in interest bearing accts. in aggregate and donated to the state fund set up for this interest.