Will We Have to Turn Over Tax Refund to Trustee??

[MarieT]

Okay I am really confused here. We have our meeting with trustee next week and our attorney has said that we should try to file out 2010 taxes by then and bring that to meeting.

Last year we had a $2,500+ refund which the IRS intercepted as we owed back tax debt. Since we are including the IRS debt as unsecured creditor (debt over 4 years old), that won't happen this year but will the trustee get our refund? Getting two different answers from two different attorneys at my attorney's office.

(We already did tax extension and estimated a $2,500 refund)

[klandsb]

I think every trustee is different...

I have read yes and no but in my particular case "NO" I have not had to turn over any refund or bonus that I might get on my paycheck. Believe me I put it away for the emergencies that come up or taxes, insurance ect..... I feel very lucky in that regard.

[MSbklawyer]

Some trustees go after tax refunds with a vengeance; others seem to think they're not worth the trouble.

The trick to this is to adjust your withholdings so that you only get a minimal refund from the IRS in future years and then it won't matter if your trustee tries to take your refund.

[newbie2]

Some trustees go after tax refunds with a vengeance; others seem to think they're not worth the trouble.

The trick to this is to adjust your withholdings so that you only get a minimal refund from the IRS in future years and then it won't matter if your trustee tries to take your refund.

MSbklawyer, hopefully that works in most states / districts. In Michigan it is on the confirmation order that we are not allowed to do anything to our current withholding status to alter our refund status.

[MarieT]

I talked to my attorney about this today after I posted question. He told me that no, the trustee would not keep tax refund - it would come back to us. He said what it would do is figure into income to raise the monthly payment in the plan but that it should only raise it at about $20 a month and we are getting about $3,200 refund so even if we have to pay $1,200 into plan over next 5 years, we're ahead. He also told me that trustee normally does not look at tax returns/refunds every year. We were planning to change our with-holding as soon as we get through this BK. I had not even considered that maybe that wouldn't be allowed.

[newbie2]

I talked to my attorney about this today after I posted question. He told me that no, the trustee would not keep tax refund - it would come back to us. He said what it would do is figure into income to raise the monthly payment in the plan but that it should only raise it at about $20 a month and we are getting about $3,200 refund so even if we have to pay $1,200 into plan over next 5 years, we're ahead. He also told me that trustee normally does not look at tax returns/refunds every year. We were planning to change our with-holding as soon as we get through this BK. I had not even considered that maybe that wouldn't be allowed.

If the trustee doesn't keep tax refunds, then you can adjust your withholdings safely I would think. In our district if the trustee keeps refunds (they do) then we are not allowed to adjust our withholdings to thwart that :-)

[MarieT]

So I checked status of refund on IRS site and it says we should get refund on 18th unless there's a delay in processing or we owe other taxes. My husband says we probaby WON'T get it because IRS will intercept it like they have the last 2 years but one of the reasons we filed bk was to get rid of the $22K we still owed IRS from over 5 years ago and our attorney says it becomes an unsecured debt in bk since it's so old so hopefully they can't keep it.

Does anyone have experience with this?

[lrprn]

Marie, you said your tax debt was more than three years old and I'm assuming your $22K tax debt also meets these very specific criteria:
- The due date for filing a tax return is at least three years ago.
- The tax return was filed at least two years ago.
- The tax assessment is at least 240 days old.
- The tax return was not fraudulent.
- The taxpayer is not guilty of tax evasion.

If you can answer yes to all the above, then from the research I did online your lawyer is right. Your tax debt will be paid back over the length of your plan at the same % as the rest of your unsecured debts. Whatever is left after the end of your plan should be discharged in full.

Your lawyer already told you that your trustee is not going to take your 2010 tax refund. Be grateful to have a trustee that is lenient about tax refunds. How trustees deal with tax refunds in active Ch 13s varies a great deal across the country.

Now you just need to confirm with your lawyer if you can change your withholdings during your active 13 so getting large refunds throughout the rest of your planwon't become an issue. This will give you more cash to work with every paycheck - that's a good thing in Ch 13.

Putting all or most of your refund into your emergency fund helps create a safety net when big, unexpected expenses come up....and they always do eventually.

[sthrnbelle]

They kept ours until the back taxes were owed. They even kept our "making work pay" checks that everyone received a couple of years ago. We were told it didn't matter that the back taxes were part of our bankruptcy, the IRS gets their money first. We cleared it up with our 2009 return, and finally got a check for about $100.

[sthrnbelle]

Let me clarify. The trustee didn't keep our refund, the IRS did. We did not receive one dime from the IRS until all our taxes in the bankruptcy were paid.

[MarieT]

Yes...we more than meet every one of the criteria points for being able to pay the tax debt as an unsecured debt. I am also planning to change our withholdings and put the lion's share of the refund into an emergency account...I am just getting nervous because we still have not received it. Thank you for the info!