Will the Trustee take my next Tax Refund??

[rilbrianne]

I am hoping to file soon, Pro Se, and am wondering if the trustee will want to wait until my tax refund comes in next March/April to close my case.

I am married, 2 kids and we have absolutely no assets but an old pickup truck, we don't even have furniture, etc. We are about 60,000 below the median for Michigan. If I file in July, do you think the trustee would want to wait for my tax return and take it from us since we have nothing else to offer? We will get an EIC and can claim 2 children so I expect we'll have about 4-5000.

What do you think may happen and should I file now or wait until a few months after I get my return?

[BassBoy]

I don't believe it really matters when you file. If the Trustee feels that your refund is enough of an asset, he/she will have you turn over a portion of it. Meaning, each month is 1/12th, so the amount you may have to pay the Trustee will be prorated. I also believe that a portion of your refund is exempt, so it's not like the Trustee will take it all. For example, we got about the same return as you every year and the Trustee only got $676 of our refund. The rest was ours to keep.

[rilbrianne]

If I'm filing ch 7, should they even be able to take this as the debt I owe is wiped out... I mean they wouldn't be able to put it towards any debt right?

[BassBoy]

In a Ch.7, if the filer is an asset case, any monies that can be made/taken goes to your creditors. Your creditors may not get paid in full, but they'll receive something. As I said, we had to turn over some money to the Trustee, but this was the ONLY asset......so......a large income tax refund, like yours may be, could make you an Ch.7 asset case.

[JRScott]

Probably depends on your court and trustee. At the 341 today I didn't see the trustee here question anyone about tax returns. He did question some about transfers of property, sales of property, retirement fund disbursements in the last couple years, etc. Just didn't hear any tax questions except asking for a 2006 tax return from one individual.

[SinkingFast]

Tax Refund questions come up mainly in the Spring and Fall. Spring when people are filing and fall when it won't be long before you file again.

In the Fall, the Trustee is entitled to take a pro rated portion of your refund. If you file in Sept, that's 9/12th's. Oct is 10/12th's. Etc.

If you typically get a big refund, unless the bulk of it comes from Child Tax Credits, and you file Spring or Fall, the Trustee is likely to be interested.

The BK Court's thinking is that Income Tax Refunds are basically a Voluntary Savings Program. It's money you earned and should have had in your pocket thru-out the year. But instead, you chose to let the IRS hold it for you.

[rilbrianne]

SINKING FAST, Most of my tax return will be from child tax credit (claiming 2 kids although I stay at home and will have no actual daycare expenses - if that matters for a child tax credit) and an earned income credit.

I guess now is a good time to file being the middle of the year.

I just read a few moments ago that the earned income credit is exempt under the federal exemption scheme. (that information could have been outdated and may have applied to a different state though so I'm not positive)

Can you tell me if I can claim the child tax and earned income credit as exempt and under what law? I don't know if I'm going to go with federal or Michigan exemption scheme yet but the federal looks better. If they are exempt, and the trustee can only take 7/12's of what is left, that wouldn't be as bad as losing the whole return because I "didn't know any better".