tax refund when you have irs lien

[susie111]

Hi Everyone,

I'm new here and have a question. I have owe back taxes for the last 5 years. Which is not really my fault. They audit the tax year during a worst timing of my life and at that time the taxes was the last thing on my mind. Anyways, I file for a offer in comprise for the tax year 2002 and 2003. After 2 years it was denied. Every year the IRS would keep the refund and this year I have decided to file a ch. 7. I'm trying to file before I file for my taxes becuase I really need the refund this year. Any one here have any advice for me?

[HHM]

Odds are, you are not going to get the refund one way or the other. You are in a catch 22

If you file chapter 7, if there is no way to exempt the refund, the trustee will take it. Obviously, if you wait to file BK after you do Taxes, the IRS will take the refund.

You need to check your state's exemption law and see if they have a wild card exemption that you can use to exempt your income tax refund.

But in your situation, you best figure out a way NOT TO NEED that refund.

[phoenyx]

Just in case your state doesn't have a wildcard exemption...

Some states allow you to use the federal bankruptcy exemptions instead of that state's. Other states don't allow you to use the federal bankruptcy exemptions.

I'm in a state that lets you choose. In my situation, it's more advantageous for me to use the federal bankruptcy exemptions.

The federal bankruptcy exemptions allow you to use up to $10,125 of the unused homestead exemption toward other property. I don't own a home, I rent an apartment, so this is exempting my upcoming refunds.

On the website http://www.thebankruptcysite.org, it will show you for your state whether you can choose the federal bankruptcy exemptions. (Arkansas, Connecticut, Washington DC, Hawaii, Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, New Mexico, Pennsylvania, Rhode Island, Texas, Vermont, Washington state, and Wisconsin appear to allow you to choose.)

However, you can't pick and choose for each category -- you get the entire federal exemptions, or your entire state exemptions -- and that's if you're in a state that allows you to choose. If you're in such a state, it would be worth talking to your bankruptcy attorney to see which would be better for you to file under.

You might also want to read a post that I made at http://www.bkforum.com/showthread.php?t=21302. It discusses certain situations where old personal income taxes can be discharged if you file a Chapter 7, and how tax leins are considered a secured lein on all of your property in a bankruptcy. More stuff to discuss with your bankruptcy attorney.