Chap 7 Converted to Asset

[ksa1121]

Had a 341 meeting, trustee converted my no asset case to an asset, I'm assuming because of tax refund. Wife and I filed taxes separably. She gets back a refund and I will owe, trustee said he wants me to turn over my wife's refund because we live in a community property state. I emailed lawyer asking him questions but waiting to hear back. I been racking my brain researching and can't find answers.

Does she get to keep at least half of her refund?
Would it be better to amend the taxes and file jointly? At least then I would not owe anything to IRS.

[ksa1121]

I want to add, that my wife did not file for bankruptcy. I filed by myself.

[justbroke]

Yes, it's community property. The Trustee doesn't care that you owe taxes on your personal (non-joint) tax return. They only care that there is money above an exemption.

Does she get to keep at least half of her refund? Would it be better to amend the taxes and file jointly? At least then I would not owe anything to IRS.

Community property is community property. It would have been better to have filed jointly as that would have taken the money off the table, but since you filed individually, that money is on the table. If you had filed your taxes jointly but your bankruptcy solely, then any refund would have been protected under a tennancy by the entireties (at least that works in Florida and community property States).

I think that it is likely too late to amend.

[ksa1121]

So you think she will be able to keep at least half of her return?

[justbroke]

I don't know. There is no solid caselaw on this topic.

The reason I don't know is because it would depend on whether your State, District, Appeal Circuit uses the proportionate measure for determining how much to take. If the court apportions the amounts, then I would say that since you filed taxes separately then any return on her taxes are already apportioned. It the court does not apportion the amounts and says it's all community property... then you're back to square one with the Trustee demanding the refund.

You would have a better argument, for half, if you filed taxes jointly; at least in the worse case.

Where did she have the refund sent? To her personal bank account or a shared bank account? I'm just wonder, really out loud, if you could claim tenancy by the entireties (TBE) if it went into a shared account. If she had not received the refund prior to filing, that muddies the waters for me.

I don't have this answer for you, but the question lingers; did she receive her refund before you filed and into which account was it deposited?

[ksa1121]

She received state already, but not federal. She filed her taxes before I filed for bankruptcy, however she did not get the state back until just recently, after I filed. She has her own account that the return went into.

[justbroke]

Do you have any joint creditors? That may be why the Trustee thinks it's property of the Estate. First, you're in a community property State. Second, you have joint creditors. Third, the refund(s) was received after filing. Fourth, the tax returns were done individually. Fifth, the bankruptcy was filed individually. And sixth, the refund(s) were deposited into separate accounts which removes the tennancy by the entireties (TBE) exemption.

[ksa1121]

We don't have any debts together. All the creditors I listed were before her and I got married.

[justbroke]

Okay. You have to list all creditors even after you were married. Are you saying that after marriage, you had no new creditors?

[ksa1121]

Yes, I have no new creditors. All the creditors listed is all my debt before I got remarried. I just check pacer and seen the 341 meeting notes uploaded by the trustee.

What does this mean?

In accordance with Rule 6007, FRBP, the trustee announced an intention to abandon any interest in:
Wifes Tax Returns

[justbroke]

That looks promising. Maybe your attorney talked to them and said that they have no "joint" creditors and therefore the bankruptcy estate of the filing spouse does not include the tax refund of the non-filing spouse. That would have been my position after you answered the question on joint debts.