Federal Bankruptcy Exemptions -- unused real property toward income tax refund?

[phoenyx]

I'm filing Chapter 7 bankruptcy within the next 2-3 months in Michigan

According to http://www.thebankruptcysite.org/exe.../michigan.html, Michigan is one of a few states that allow Federal Bankruptcy Exemptions. I can choose whether to use the federal exemptions, or the state exemptions.

The state exemptions don't seem to apply to me better than the federal ones.

So, regarding the federal bankruptcy exemptions, it looks like Section 522(d)(1) allows real property up to $20,200, and that the unused portion up to $10125 may be used for other property.

I have no real property. Does this mean that if I choose to use the federal exemptions, that I can apply the unused $10125 portion of real property exemptions toward an income tax refund that I'll be receiving before I file for Chapter 7? I'll be receiving somewhere around $7500. I have no other cash except for about $100, so the $10125 unused real property exemption (if I can use it) would more than cover the incoming refund.

I'm thinking this, because it doesn't look like Michigan has a wildcard exemption.

[Lindsay]

We're in NY but our lawyer told us that because we have no equity in our house, he could exempt our tax refund in leiu of our homestead exemption.

[tallberry]

Does anyone know if this applies in Indiana too? We get a total of $15,000 for homestead but we are upside down on our house and are planning to relinquish it. Can we use the $15,000 towards our tax refund? Also, must we get our tax refund before we file for this to apply? What happens if you file your taxes after you file but before you are discharged? Thanks all :o)

[phoenyx]

Does anyone know if this applies in Indiana too? We get a total of $15,000 for homestead but we are upside down on our house and are planning to relinquish it. Can we use the $15,000 towards our tax refund? Also, must we get our tax refund before we file for this to apply? What happens if you file your taxes after you file but before you are discharged? Thanks all :o)

According to the site I've been look at, http://www.thebankruptcysite.org/exe...s/federal.html, Indiana is not one of the states that allows the filer to choose between the state's exemptions and the federal exemptions.

That being said, I don't know anything about Indiana's state exemptions. They may or may not allow you to use the unused homestead portion toward the tax refund.

The same site at http://www.thebankruptcysite.org/exe...s/indiana.html lists information about Indiana's homestead exemptions. It does not mention like for Michigan that you can use the unused portion toward other property.

Note, however, that I cannot say whether this website is correct or not for Indiana or any other state.


As for your question about the timing of the tax refund, I'm somewhat reluctant to post my understanding in case I'm incorrect. I'll post my current understanding of what will happen in my situation. It may or may not apply to you, but maybe it'll give you a basis to look into things further. As always, a bankruptcy lawyer will be able to clear up the situation for you.

At least for my situation, it appears that if I receive a tax refund shortly before I file (and if it's not exempted) that I have to show what I did with it in detail. If I didn't spend it on ordinary expenses, or if I didn't convert it into exempt property, it looks like the trustee would go after the refund -- at least the portion that wasn't spent on ordinary expenses. Like, it looks like I can't go on a nice vacation with a tax refund prior to filing. It also appears to me that the trustee would look to take a tax refund coming toward the year that's in progress when I file, if it's most of the way through that year, whether the return is filed or not. I don't think that I'd be able to spend that money on ordinary expenses or convert it into exempt property, but I think that I would be able to claim it by exemptions.

[Lindsay]

Tallberry, we can't use Federal exemptions in NY either, but our attorney told us that we can exempt our tax refund in leiu of homestead. Have you retained an attorney yet? If not, you should call around and ask for a few free consultations. We felt so much better afterwards!

[FreshLikeADaisy]

Phoenyx, when you file that $7500 (or whatever is left of it) will show up in your bank acct, which would then be potentially exempted by that unused homestead amount you are eligible for. In general, an unused homestead exemption is a wildcard, meaning that you can apply it to whatever you'd like, including a bank acct. Most exemptions are limited (vehicle exemption, household goods, etc) but a wildcard is not.

Your best bet, though, is to complete your inventory FIRST, and then make sure your exemptions will cover everything, so that you can use that $7500 for living expenses if you end up having too much property to exempt. Going at it piecemeal (which I tried to do at first ) will only make it very confusing. List all your property first. (You may have already done this; I just thought I'd throw it in.)

Also, if you have any non-dischargeable debt (taxes, student loans, etc) that's a great place to put any non-exempt cash you have.

Good luck!!!

[Boscoe]

To answer the original question, yes, the $10k unused fed exemption can be used for ANY non-exempt asset or assets.


I filed in a state that allows the fed exemptions, and we used the unused real property exemption to exempt alot of the money in our checking account on day of filing. Since your tax refund would likely be sitting in your bank account, you could exempt the $10k to cover this.

[tallberry]

Thanks to all...great discussion. I do have an attorney but not sure if they charge you every time you call to ask questions, so I am keeping a list of questions to ask as they come to me. I will definitely get them answered b4 filing.

[Lewislegal]

Phoenyx: I think you are correct. Michigan does allow you to choose the federal exemptions. You can use the federal exemption to cover your tax refund. What the trustee looks at is how much of the refund do you have on the date of filing your bankruptcy petition. If you filed your petition before receiving your refund, then you would exempt the entire amount (within acceptable limits). I think the federal exemptions is your best choice. Michigin exemptions are quite minimal. I thought New York was cheap with their exemptions but Michigan seems worse. NY just increased their exemption amounts and also, like Michigan, now allow a debtor to chose the federal exemptions.

[Lewislegal]

Lindsey: New York just changed the bankruptcy laws as of January 21st, 2011. You are now able to claim the federal exemptions if you wish. If you do not have any equity in your home and you do not have any judgments filed with the county clerk's office then (under NY exemptions) you could claim "cash exemption" to protect your refund. The federal exemptions allow for a generous wildcard that would protect most refunds up to certain value.

[daylate]

I looked at Indiana's exemptions a bit ago for someone's question-as I recall it didn't appear that you could use unused homestead for anything-but as someone above mentioned you need to get your attorney to answer based on current law-lots of things have changed recently-like amounts update for inflation tha tar eyet to show up on lots of websites. Good luck.

[Fallonedward]

I live in Michigan and this is what we did. We used Federal and used the unused amount up to $6,000K for our return. Use Federal its so much better

I'm filing Chapter 7 bankruptcy within the next 2-3 months in Michigan

According to http://www.thebankruptcysite.org/exe.../michigan.html, Michigan is one of a few states that allow Federal Bankruptcy Exemptions. I can choose whether to use the federal exemptions, or the state exemptions.

The state exemptions don't seem to apply to me better than the federal ones.

So, regarding the federal bankruptcy exemptions, it looks like Section 522(d)(1) allows real property up to $20,200, and that the unused portion up to $10125 may be used for other property.

I have no real property. Does this mean that if I choose to use the federal exemptions, that I can apply the unused $10125 portion of real property exemptions toward an income tax refund that I'll be receiving before I file for Chapter 7? I'll be receiving somewhere around $7500. I have no other cash except for about $100, so the $10125 unused real property exemption (if I can use it) would more than cover the incoming refund.

I'm thinking this, because it doesn't look like Michigan has a wildcard exemption.

[Lewislegal]

The homestead exemption is now $17,600. Debtor in Indiana can not elect the federal exemptions. However, they do have a "wildcard" of $9,350 that can apply to any tangible personal property. The applicable date is the date of the bankruptcy filing. If you expect a refund of $5000 when you filed bankruptcy then you would exempt that amount (assuming the entire year has passed). Sometimes (say you filed in june of 2010) you have to "estimate" the amount of the refund on a pro rated basis. You can also amend your bankruptcy petition after you filed until the case is closed. You are always allowed to surrender secured property (i.e. house or car) in the bankruptcy and walk away. If you are doing this, do not sign a "re-affirmation agreement". Indiana does not allow you to use the balance of homestead, it has separated wildcard as indicated above. This $9,350 includes household goods and furnishings, bank deposits (on day of the bk filing), clothes, books, pictures, art objects, collectibles, furs and jewelry, firearms, sporting goods, photograhic equipment and hobby equipment. The value is based on "garage sale price". So, in short, you have to add up the garage sale price (which is somewhat of a guess) of these items and whatever is left over is the amount you can use to exempt the tax refund.

Also, it depends on when the bankruptcy case is filed as far as how much of the refund the trustee can claim. For example, if the bk is filed on 10/7 then 280 days of the refund is in play. So, a total refund of $6,028 would mean $4,624 of it as included in the bankruptcy estate. Hope this helps.

[Lewislegal]

$9,350 also includes automobiles (the equity portion) and some other items that most people do not have, like boats, atv, etc. If the vehicle is secured to it's value (which most are underwater) then no equity in the vehicle and does not deduct from the exemption amount.

[cnh]

At least for my situation, it appears that if I receive a tax refund shortly before I file (and if it's not exempted) that I have to show what I did with it in detail. If I didn't spend it on ordinary expenses, or if I didn't convert it into exempt property, it looks like the trustee would go after the refund -- at least the portion that wasn't spent on ordinary expenses. Like, it looks like I can't go on a nice vacation with a tax refund prior to filing. It also appears to me that the trustee would look to take a tax refund coming toward the year that's in progress when I file, if it's most of the way through that year, whether the return is filed or not. I don't think that I'd be able to spend that money on ordinary expenses or convert it into exempt property, but I think that I would be able to claim it by exemptions.

Hi phoenyx!!

I am so confused by everything!
In your reply, you said ordinary expense - can you clarify that? My fiance and I have gotten tax returns and student grant returns. We have spent what we could on grocery expenses, vitamins, tp paper town, etc. Maybe 700 total.
We got glasses and are going to an oral surgeon Monday to have teeth pulled.

Are we ok with what we spent?

And what else can we spend it on so we don't have to claim that much money and bank account balance because VA only has a $5000 exemption

We want to get clothes, our lawyer said, don't spend too much. WHAT does that mean!?!!? Why do lawyers have to speak another language
I know what a preferintal payment is and we have not done that.

Thanks in advance.