Trying to keep large income tax return for 2004 ; just filing 2004 return now

[phoenyx]

I'm filing Chapter 7 bankruptcy within the next 2-3 months. I am married, however none of my debt is in my wife's name whatsoever. She is not filing bankruptcy.

I am in the process of preparing and filing my federal income tax returns for 2004, 2005, and 2006. I've had a ton of accounting I had to do for my business before I could file, and I've just gotten around to doing that.

For 2004, I'll be receiving a refund of $7240. I was still single at the time, so I will be filing single.

For 2005, I'll be receiving a refund of $210. I will be filing married, jointly.

For 2006, I'll be receiving a refund of $11. I will be filing married, jointly.


QUESTION: If I file my returns around the same time as the bankruptcy, the trustee will go after the large $7240 at least, even though it's from years ago, since it's an upcoming cash inflow to me -- right?

FOLLOW-UP QUESTION: Does this mean that I should file my income tax return before my bankruptcy, receive the refund, and blow it or convert it into exempt assets, before I file for the bankruptcy -- so we get to "keep" it? Keeping it as cash would be the best, but I'm figuring that's impossible to do.



EDIT: I live in Michigan. I don't believe Michigan has a wildcard exemption, so if I'm right on that, no help there on keeping it as cash.

[CindyLou]

You know, one thing you may consider is filing your 2005, 2006, and 2007 prior to bk in order to have your required returns.... then after the BK filing your 2004. BUT the tricky part here is that April 15, 2008 is your drop dead date to file and still get that refund.

Plus you will have to file on paper...so if you were to around the first week in April you wouldn't be seeing a refund in your hand until at least 6-8 weeks later.

If you file ASAP you could probably time this just right.

Now of course you should do this under the direction of an attorney, and if anyone ask if you know you will be getting any money you would have to say yes and disclose.

You can't "blow" that money. You will have to show proof of what you spent it on and i would have to be necessities like medical care, dentist, food, shelter, etc..... You can turn it into exempt property according to what your state allow.

[phoenyx]

Ahh, nice. Didn't even think about that, that the 2004 return might not be required by filing bankruptcy since it isn't part of the past 3 years.

I'm on a fiscal year instead of a calendar year actually ending 3/31 (don't ask LOL.) So, my drop dead date would actually be July 15, 2008. That would make your suggestion even more plausible. Of course, my 2007 return won't be able to be completed until 4/1/2008 since my 2007 year isn't over yet, but that's not too off in the timeframe I was thinking of filing in anyway.

I'll definately talk to my attorney about this.

Thanks!

[PaKettle]

I'm filing Chapter 7 bankruptcy within the next 2-3 months. ...[snip]EDIT: I live in Michigan. I don't believe Michigan has a wildcard exemption, so if I'm right on that, no help there on keeping it as cash.

You should ask your attorney if the Trustee is in the habit of taking tax returns. I know that my attorney told me that the Trustee here is not interested in tax returns. He did not explain why.

But for that amount of money, I'd be nervous about losing it. So I think the best thing to do would be not file it until after the bankruptcy, i.e. wait and do your 07 taxes first and file after that so the last 3 years of taxes will not include 04.