Can trustee take entire tax return?

[Forza42]

We filed in June. Our attorney told us the trustee can only take 50% of our tax return for the following year, and that's it. So we never adjusted our paychecks so that we didn't get a return (we like looking forward to a big chunk of change, I know a lot of people don't agree). I recently asked the paralegal how it works, if we just write trustee a check for half, or whatever. She told me that the entire refund will be sent to trustee, and that they can also take the refund for all 5 yrs of the bankruptcy. I told her that's not what the lawyer had told us to begin with. She spoke with him and now says that the trustee can take half of the return for 2012, and gets to keep the entire return for the next 4 years. Does this sound correct? We are in Arizona. Thanks!

[13for60]

Every District has its own rules. For me - in Northern California - the attorney figures in the correct witholding as part of the plan documentation, so no matter if you get a return or owe the plan is tailored to what your tax bill will be. I read that some people were jacking their witholding up really high to make the take-home pay look artificially low. My family usually get a small return.

Also, your C13 orders specify what you have to do, so unless the C13 orders specifically state that any return goes to the Trustee it's a non-issue.

Hope that helps!

[goon]

As was said you need to look at your confirmation order and see what language it has. I live in AZ and I get to keep my entire refund, but it can vary.

Also be aware of the difference in terminology between a "Tax Return" and a "Tax Refund"....
a Tax Return is the actual paperwork that you send to the IRS every year whether you have to pay or are getting a refund (ie form 1040(ez) + whatever other forms).
a Tax Refund is money that you get back from the IRS because you overpaid over the course of the year with your paycheck withholdings or estimated taxes.

I do have to provide the trustee with copies of my Tax Returns (paperwork) within 30 days of filing, but I get to keep my Tax Refunds (money I am getting back from the IRS)
(but your situation may be different, look at your confirmation order)

[TheBajan]

I'm in Michigan. In our case our lawyer exempted the first $3600 of our return for us to keep. He factored it into our plan so we could have enough DMI to actually be in a 13. Anything over that amount, the trustee will get.

[Sammie]

Hi I'm in NC anything up to $2,500 we get to keep. sammie

[BNKRPTinNC]

Also from NC (middle district) but nothing stated that we had to turn over any tax refund. What refunds we had received , on the look back, were figured into the plan. Changed withholding so as to get a minimum refund. You would think that some sort of consistency would make it easier on everyone. However, I ain't complainin' as it seems that I have been most fortunate in getting a plan that was doable and a trustee that has been a "distant cousin", throughout this adventure, that drops a line a couple times a year but never visits.

In the home stretch.

[katztoo]

I live in SC and we had to send our entire refund. I adjusted my paycheck to take out less so we get a smaller refund and when trustee saw that she raised our plan payment! She found out by requesting our paystubs when we didn't have a refund one year. She saw the withholding allowances were different than our original ones when we filed.
Just thought I'd warn anyone that might have that idea!

[Forza42]

Katztoo- that's what I was afraid of

Thank you all for your help!

[LadyInTheRed]

We filed in June. Our attorney told us the trustee can only take 50% of our tax return for the following year, and that's it. So we never adjusted our paychecks so that we didn't get a return (we like looking forward to a big chunk of change, I know a lot of people don't agree). I recently asked the paralegal how it works, if we just write trustee a check for half, or whatever. She told me that the entire refund will be sent to trustee, and that they can also take the refund for all 5 yrs of the bankruptcy. I told her that's not what the lawyer had told us to begin with. She spoke with him and now says that the trustee can take half of the return for 2012, and gets to keep the entire return for the next 4 years. Does this sound correct? We are in Arizona. Thanks!

The treatment of tax refunds during a Chap 13 depends on local procedures and/or the terms of your plan.

Here's my guess of what is going on. In your plan, your DMI was caluclated based on deducting your actual tax withholding as an expense. So, if you get a refund, your expense wasn't as high as shown on your Schedule J and that refund is DMI that must go to the trustee. Because you filed half way through the year, you only have to pay to the trustee the half of the refund that was attributable to income earned while you have been in the plan. The half of the refund that was attributable to income earned before you filed BK was an asset on your date of filing. Since assets usually aren't liquidated in a Chap 13, you get to keep that half. It would become part of the Chap 7 liquidation test in determining a minimum that you must pay to unsecured creditors.