tax refund and option to apply to 2021 estimated tax

[bornfree2]

What happens to tax refunds from 2020 (not from stimulus) that are opted to be applied to 2021 estimated taxes? Since the IRS wont send that refund to debtor but credit their account,does trustee lay claim to it? Do they ask for tax return to be amended? Does opting for credits applied make things messier?

[justbroke]

The bankruptcy estate may have claim to it. It is no different than having money in the bank, or an employer deferring payment. The Trustee looks at your tax returns to determine if you were entitled to a refund. If you have exemptions, use an exemption. If the cash value of the refund is non-exempt, then surrender the refund to the Trustee. The Trustee has special clawback powers. They'll simply claw it back from the IRS and then the IRS will reduce the value of your account.

I would not, however, apply a refund to a future return when I'm about to file bankruptcy. It may bring unwanted questions including questions of "bad faith" or fraudulent transfer. Please remember that a bad faith objection under 707(b) can be used by the United States Trustee (UST) if they believe that a debtor otherwise would qualify for a discharge, but there are factors at play which suggest that the debtor is not deserving of a discharge under Chapter 7.

TL/DR: the Trustee has clawback powers. The UST has discharge-blocking powers. I would exempt the money, or spend it before filing. If it is a substantial amount, hiring a lawyer is an appropriate use of the funds.

[despritfreya]

If you apply the refund to a future tax year and then file bk, the Chapter 7 Trustee will have the right to prepare and file an amended return to recapture the refund. Whether or not he/she will exercise that right depends upon the amount of the refund and whether or not the Trustee deems such worth doing. I have had this issue pop up twice and both times the Trustee prepared and filed amended returns to get the refunds.

Des.

[bornfree2]

If you apply the refund to a future tax year and then file bk, the Chapter 7 Trustee will have the right to prepare and file an amended return to recapture the refund. Whether or not he/she will exercise that right depends upon the amount of the refund and whether or not the Trustee deems such worth doing. I have had this issue pop up twice and both times the Trustee prepared and filed amended returns to get the refunds.

Des.

I wonder what right/law gives the Trustee that kind of power to amend an individual's tax return. Im sure its codified somewhere but wow thats pretty powerful . Do they also have the right to dig into your emals, phone records, make home searches, search through credit card transactions,etc? It seems unconstitutional...

[justbroke]

I wonder what right/law gives the Trustee that kind of power to amend an individual's tax return. Im sure its codified somewhere but wow thats pretty powerful . Do they also have the right to dig into your emals, phone records, make home searches, search through credit card transactions,etc? It seems unconstitutional...

For all intents and purposes, the Trustee becomes you! The Trustee steps into your shoes and can perform any act that you could perform with respect to property.

The Trustee's powers are not limitless. The only way to dig into phone records, emails, searches, and etc, would be to obtain a search warrant. Typically the Chapter 13 Standing Trustee and the Chapter 7 Panel Trustees don't deal with criminal matters. The Chapter 13 Trustee and the Chapter 7 Panel Trustee are ordinary citizens. They would refer it to the Office of the United States Trustee (UST). The UST is a governmental employee and their best friend is the Office of the United States Attorney (US Attorney). Should the matter become a criminal matter, then all processes and procedures would follow the Federal Rules of Civil Procedure and any particular practical procedures specific to the US Attorney's office.

So, it's not that powerful. They can only do what you could do as an ordinary person. The panel and standing trustees don't possess any criminal investigatory powers. The word "trustee" is not a misnomer. They are literally the trustee of your estate (property) during the pendancy of the bankruptcy. This is not unconstitutional whether it seems to you or not.

With few exceptions for Chapter 7, nearly every individual files a bankruptcy voluntarily. The Trustee is appointed to oversee the bankruptcy estate, which is created the moment that you file. Their job is to protect the bankruptcy estate and to administer that estate as necessary. The receive the power, stepping in the shoes of the debtor, because they are court-appointed trustee. Should you not want the protection of the bankruptcy laws, then you simply don't file a voluntary bankruptcy.

[despritfreya]

I wonder what right/law gives the Trustee that kind of power to amend an individual's tax return.

Trustee demands turnover from IRS for NOL despite Debtor’s “irrevocable” election:

https://casetext.com/case/in-re-feiler-3

And, while this was not by way of a trustee amending the debtor’s return (and involved a substantial amount of money), attempting to squirrel away property that is property of the estate will just invite trouble.

As JB alludes to, if one is not willing to give up a little to get rid of a lot, then one should not file bk.

In the two cases I handled, allowing the Trustee to amend the returns (with the Trustee signing on behalf of the bk estate) was the smartest thing my clients could do - considering the other crap each tried to pull that caused them to seek out our services for "damage control".

In a third case, my client thought he was being "smart". Once I found out, I had him cut a check to the Trustee for the amount he tried to take from the bk estate.

Filing bk has consequences - some good, some not so good and some very, very bad.

Des.

[bornfree2]

For all intents and purposes, the Trustee becomes you! The Trustee steps into your shoes and can perform any act that you could perform with respect to property.

This is a legal fiction or strawman. And open to so many fallacies. If the Trustee becomes the debtor, then who is representing at the 341? Two people of the same person? One real (me in the flesh) and the other the so called 'Trustee'. Yet we are both in the same shoes. Yet i immediately render my rights to my property (unconstitutional without due process) with one signing of a form 'voluntarily'... for its protection.

Its crazy amount of power to hand over with one signature. But thats why the pen is stronger than the sword.

The Trustee's powers are not limitless. The only way to dig into phone records, emails, searches, and etc, would be to obtain a search warrant. Typically the Chapter 13 Standing Trustee and the Chapter 7 Panel Trustees don't deal with criminal matters. The Chapter 13 Trustee and the Chapter 7 Panel Trustee are ordinary citizens. They would refer it to the Office of the United States Trustee (UST). The UST is a governmental employee and their best friend is the Office of the United States Attorney (US Attorney). Should the matter become a criminal matter, then all processes and procedures would follow the Federal Rules of Civil Procedure and any particular practical procedures specific to the US Attorney's office.

So, it's not that powerful. They can only do what you could do as an ordinary person. The panel and standing trustees don't possess any criminal investigatory powers. The word "trustee" is not a misnomer. They are literally the trustee of your estate (property) during the pendancy of the bankruptcy. This is not unconstitutional whether it seems to you or not.

With few exceptions for Chapter 7, nearly every individual files a bankruptcy voluntarily. The Trustee is appointed to oversee the bankruptcy estate, which is created the moment that you file. Their job is to protect the bankruptcy estate and to administer that estate as necessary. The receive the power, stepping in the shoes of the debtor, because they are court-appointed trustee. Should you not want the protection of the bankruptcy laws, then you simply don't file a voluntary bankruptcy.

I take issue with this because this 'deal' for bankruptcy, is straight up mafioso. 'We take everthing and can do anything of yours immediately, and you get our protection. Dont like it, dont sign it voluntarily. But dont also ask for protection from the creditors who will devour you - oh by the way we are here for them'

[justbroke]

I take issue with this because this 'deal' for bankruptcy, is straight up mafioso. 'We take everthing and can do anything of yours immediately, and you get our protection. Dont like it, dont sign it voluntarily. But dont also ask for protection from the creditors who will devour you - oh by the way we are here for them'

But it's not. Hundreds of thousands file bankruptcy every year. No issues. Businesses file bankruptcies all the time; no issues.

There's simply too much conjecture and hyperbole. They don't take everything. That is so far from the fact. Only about 5% of Chapter 7 bankruptcy cases have "some" liquidation (it may only be a portion of a tax refund). Most Chapter 13 debtors give up zero property. I have had nothing taken in Chapter 7 or in Chapter 13. Personal bankruptcy is voluntary. (Chapter 13 is strictly voluntary and Chapter 7 is a different story but the super-majority of individual debtors file voluntarily.)

The simple fact is that if you don't want to ever be in a position where you ask the government to protect you from your creditors, then don't obtain anything on credit. Don't ever subject yourself to any lawsuit. And certainly, don't ever start a business. You seem to want it all and that's simply not viable. If you borrow money from someone, then you should pay them. The law provides a way for a debtor that has no chance to pay the creditor, to do so. Just not on the whim of the debtor. The debtor must show that they have "no means" to pay the creditor(s) in order to walk away without paying the promise (the obligation, the promissory note).

I don't understand why anyone would believe that it is one-sided. The law, and courts, have only helped those that deserve the help and come with clean hands. The bankruptcy court is in no way "there" for the creditors. The bankruptcy law exists to be in impartial arbitrator of what constitutes a debtor and which debts can be summarily discharged.

There has to be rules to the game. Do you know why the rules tightened up in 2005? Despite that lobbyists for the creditors did have their hands in the stupid means test, it was meant to take the arbitrary decisions about who qualifies away from the judges and courts. While the means test is a strange abomination of trying to quantify all bankruptcies by treating them the same (from a numbers aspect), the goal was to keep those that could afford to pay something... to pay something.

Perhaps bankruptcy is not for you. You don't have to do it. You don't have to ask the government to protect you from your creditors in exchange for, maybe, giving up a tax refund. At the end of the day, even if I gave up a $10K tax refund, the > $1,000,000 in debt I was able to discharge was well worth the disclosures, review, and any discomfort that I felt.

But that's me. I accepted the reward (the discharge) for a little personal discomfort.

[bornfree2]

But it's not. Hundreds of thousands file bankruptcy every year. No issues. Businesses file bankruptcies all the time; no issues.

There's simply too much conjecture and hyperbole. They don't take everything. That is so far from the fact. Only about 5% of Chapter 7 bankruptcy cases have "some" liquidation (it may only be a portion of a tax refund). Most Chapter 13 debtors give up zero property. I have had nothing taken in Chapter 7 or in Chapter 13. Personal bankruptcy is voluntary. (Chapter 13 is strictly voluntary and Chapter 7 is a different story but the super-majority of individual debtors file voluntarily.)

The simple fact is that if you don't want to ever be in a position where you ask the government to protect you from your creditors, then don't obtain anything on credit. Don't ever subject yourself to any lawsuit. And certainly, don't ever start a business. You seem to want it all and that's simply not viable. If you borrow money from someone, then you should pay them. The law provides a way for a debtor that has no chance to pay the creditor, to do so. Just not on the whim of the debtor. The debtor must show that they have "no means" to pay the creditor(s) in order to walk away without paying the promise (the obligation, the promissory note).

I don't understand why anyone would believe that it is one-sided. The law, and courts, have only helped those that deserve the help and come with clean hands. The bankruptcy court is in no way "there" for the creditors. The bankruptcy law exists to be in impartial arbitrator of what constitutes a debtor and which debts can be summarily discharged.

There has to be rules to the game. Do you know why the rules tightened up in 2005? Despite that lobbyists for the creditors did have their hands in the stupid means test, it was meant to take the arbitrary decisions about who qualifies away from the judges and courts. While the means test is a strange abomination of trying to quantify all bankruptcies by treating them the same (from a numbers aspect), the goal was to keep those that could afford to pay something... to pay something.

Perhaps bankruptcy is not for you. You don't have to do it. You don't have to ask the government to protect you from your creditors in exchange for, maybe, giving up a tax refund. At the end of the day, even if I gave up a $10K tax refund, the > $1,000,000 in debt I was able to discharge was well worth the disclosures, review, and any discomfort that I felt.

But that's me. I accepted the reward (the discharge) for a little personal discomfort.

Its an unconscionable contract. The 'voluntary' petition is the contract. The parties are the debtor and the court (court for the creditors). With any contract, there must be a meeting of the minds. Debtor never had a say in this contract. There was no meeting to confer and negotiate the wholesale turn over of the debtor's estate.

Bankruptcy has its benefits but its a monopoly. Im not fan of those as its not healthy and proven o be abusive. It is a burden to a dynamic, democratic society

[justbroke]

I don't know where you are going with any of this. You lost me at... the parties are the debtor and the court (it's not... it's the debtor and their creditors). This is not a contract. A court case is not a contract. The petition is not a contract. In a Chapter 13, however, some consider the Plan of Reorganization to be a contract between the debtor and the creditors (not the court). If a person is filing any petition with any court, they are well served to hire an attorney so they understand the rules (State criminal and non-criminal rules and procedures, federal bankruptcy/non-bankruptcy rules and procedures, the underlying laws, and anything else procedural).

Arguing that bankruptcy is a monopoly or that it is not democratic is lost on me. A debtor enters into a contract and must perform on that contract. The court is only intervening and saying that if the debtor satisfies certain objectives, the courts removes -- and only removes -- the personal responsibility of the debtor to perform their duties under the contract. The credit contract (claim) itself actually survives. Only the debtor's personal liability to pay is discharged (removed).

So... the only contract here is the debtor and their creditor. I think I know what you're trying to say, but it just doesn't work. Instead of attacking the contract between the debtor (a promise to pay) and the creditor (who usually has loaned money or is owed money), you are attacking the system which can deem that contract void as to the debtor. I would have probably entertained some sort of argument that the creditor usually has the upper hand as they typically write the contract (terms and conditions, cardholder agreement, promissory note). There's no argument won that it's the court's fault that the debtor needs their protection from the contract upon which the debtor voluntarily entered.

[bornfree2]

I don't know where you are going with any of this. You lost me at... the parties are the debtor and the court (it's not... it's the debtor and their creditors). This is not a contract.

It is a contract. It is a contract between debtor and the legal fiction/strawman trustee. The system that allows this is a legal code. This particular law is unconscionable, against public policy, and unconstitutional.

Yes I would have to draw out a legal argument to refine this theory. But sufficient to say there has been no meeting of the minds over this 'voluntary petition' which IS the start of the contract, so this entire bankruptcy scheme and the voluntary petition and associated schedules are the contract.

Its getting off topic to OP question, but its an interesting legal puzzle.

[shipo]

bornfree2, bankruptcy is what it is, get over it. Your constant conspiracy theory/unconstitutional/oh-poor-me victim attitude is wearing thin. If you don't want to file a bankruptcy, no problem, pay your debts.

[flashoflight]

bornfree2 I think you are best served hiring a BK attorney from the beginning rather than do pro se. You seem to have a propensity to step on landmines, many of which are clearly marked by flags such as pushing a tax refund to 2022. Once you file pro se, the upfront required retainer to fix your case go up exponentially and most attorneys will refuse your case at any price.