Letter From Trustee

[yoyoma51]

It is kind of like preferential payments. Some trustees go after them, some do not.

[Lindsay]

Our lawyer told us not to worry about our refund, he said he could exempt it in lieu of homestead. We've already filed and will spend it before we actually file on neccessities, bills and insurance. Even though we get a large refund ($5000+), he didn't seem very concerned at all.

[scottsnewlight]

Now, when i read that the trustee we get the money (TAXES) , i read that the trustee will get 25 %, i read that it will be held in escrow. I'm just trying to understand that any money you will get from taxes or in the next six months where does that go ? to pay off creditors, back taxes, back child support. At my 341 ( 02-05-08 ) nothing of that was brought up, but they do know i owe back taxes and child support, even with this years taxes i belive i will being paying out. Just wondering,,,

[dp1969]

Our lawyer told us not to worry about our refund, he said he could exempt it in lieu of homestead. We've already filed and will spend it before we actually file on neccessities, bills and insurance. Even though we get a large refund ($5000+), he didn't seem very concerned at all.

Same here, Lindsay. Our lawyer wasn't concerned. Our homestead is for our 2 cars and a damaged boat. That's all we have...we are surrendering our home. I've got deducibles for medical & dental that haven't been met for this year. That will be a good chunk ($500/per person). Not to mention, I owe people money...I can get receipts.

[epiphany]

Same here, Lindsay. Our lawyer wasn't concerned. Our homestead is for our 2 cars and a damaged boat. That's all we have...we are surrendering our home. I've got deducibles for medical & dental that haven't been met for this year. That will be a good chunk ($500/per person). Not to mention, I owe people money...I can get receipts.

Okay, but wouldn't those people you owe money to be considered creditors? I would think that your BK could be dismissed for not including them as such and that you would not be allowed to pay them until you are discharged. ???

EP

[epiphany]

You like getting your money at the end of the year instead of upping your exemptions to get it during the year?(just curious)

Hi Cali. I upped my exemptions one year about 20 years ago and ended up owing money. Never again. Plus, and I know lots of people do it and I am not exactly sure, but I don't think it's legal to do so.

EP

[dp1969]

Okay, but wouldn't those people you owe money to be considered creditors? I would think that your BK could be dismissed for not including them as such and that you would not be allowed to pay them until you are discharged. ???

EP

They are private parties (ie family, friends). I still need to pay them back.

[epiphany]

They are private parties (ie family, friends). I still need to pay them back.

I know, but I still think (even though it stinks), they need to be listed in a BK.

EP

[PaKettle]

I assume the UST is "all powerful" regarding this, but I wonder what one's chances might be of challenging this in court?
I mean, NO ONE could have KNOWN for sure they were getting this tax REBATE from Congress/Bush this year at the time of their 341, if they had their 341 over a few weeks ago. So HOW in the hell can a UST take it based on your knowing you had it coming?

I can understand how they can take your normal tax refund - that is apparently in the law and so they can do it (although think this crap should be written into law one way or the other - not "some do take it and some don't"!).

But to take this rebate, which is intended to help out the economy by giving people money to spend how they choose - the UST taking it goes contrary to the intended purpose. Frankly if they were taking mine, I'd be livid (fortunately in my district I was told I need not worry), and I think you all should write your Congressmen about this! Just maybe the UST's are over-stepping their bounds on this one! Maybe a class-action suit is in order...?

[dp1969]

EP- I suppose, our lawyer (who knows I owe money to my mom) would have been more concerned with it.

Also, when you do file your taxes (assuming the UST wants it) do they keep tabs on when you get it. Supposing that I file (taxes) before my 341 and it's been rushed (by our CPA) and by the 341, I have it...would they know? I guess they have that power to find out.
Will it automatically be deferred into an escrow account? We have direct deposit and my uncle (CPA) does our taxes. I can have him rush it before it becomes an issue or before questioned. I'm seriously thinking about it. Who knows if we will get anything sufficient, anyways.

When would you get notice from the UST, before or after the 341?

[PaKettle]

Hi Cali. I upped my exemptions one year about 20 years ago and ended up owing money. Never again. Plus, and I know lots of people do it and I am not exactly sure, but I don't think it's legal to do so.

EP

It is perfectly legal to up your exemptions and the irs website even has a calculator to help you figure out what to up them to, in order to get back 0 and owe 0 at the end of the year. The link is:

http://www.irs.gov/individuals/article/0,,id=96196,00.html

However, as of today, Monday, February 11, 2008, the calculator is not available for some reason.

I assume it will be in the future, the site just says "Notice - The IRS Withholding Calculator is currently unavailable. We apologize for any inconvenience. Until it is available, you may want to refer to the following information:
* Form W-4, Employee’s Withholding Allowance Certificate
* Publication 919, How Do I Adjust My Tax Withholding?"

But there is a lot of information there, anyway, about adjusting your withholding.

I can see why people think it is illegal to adjust one's withholding because the way the forms are worded, it does sound that way - it's not worded in such a way as to make you think it is okay to do it. But from the IRS site it is clear that they intend for you to be able to do it, otherwise they would not provide this calculator for figuring out how to adjust it.

[showboat]

dp,
At your 341 the trustee will ask if you owe ANYONE money, or have made payments of over $600.00 to ANYONE in the last 90 days. This includes family and friends and the trustee will tell you so. They should have been included in creditors!

[phoenyx]

. . .
OK..now I am fine with that. Take it, it's still better to give it up than put up with the BS that I've been through for the past few years with creditors and all that. My question is why can he take that? I thought that any funds after filing were yours to keep? I've tried calling my attorney, but he's in court today. I'm waiting for him to call me back. Any input from anyone?

The rationalle is that any refund you're receiving is because you had too much tax withheld during 2007. The refund you receive is money that you should have had in your paychecks during 2007, that "shouldn't" have been sent to the IRS during 2007. So, they look at it as a deferred payment of such, that was actually owed to you during last year.

I'm sorry but our lawyer did not want to hear anything of a "possible" refund. We owe my parents in excess of $15k and any money I receive HAS to go to them. We have a contract, in writing, that states this.
What is the trutee going to think of that??

BTW- Our 341 is on 2/19

If it is 6 months, then suppose I don't file until August and just pay the penalties? And when you are saying that you don't "know" of any return coming to you, shouldn't that be just that?

Uggh, that's a tough spot if your lawyer won't talk to you about it, but I understand why because it puts him in a tough ethical spot.

I can't say whether your trustee will go after the refund, or whether you might have any exemptions you can apply toward the refund. However, laws have priority over any contract that you have signed, so the contract may not have bearing except to the point that they are a creditor who has a right to receive partial funds that the trustee generates. If you haven't listed your parents as creditors in your bankruptcy petition, definately talk to your attorney about amending them onto your petition before your 341. That might give a chance for them to get something, in the case that the trustee seizes the refund.

I owe my father a lot of money too, and like you, are concerned about getting it paid back. I'm including him in my bankruptcy (you are required to list all creditors.) Remember, and explain to your parents, that just because the debt is legally discharged doesn't mean you aren't going to pay them back. Except you aren't exactly paying back the debt, just giving them gifts in the amount of the debt. You might have to file a gift notice with the IRS, but it won't have any tax implication for you or your parents at the amounts you're dealing with.

I have to caution you strongly about filing late. Penalties are generally based on the amount of tax owe. I have filed most of my tax returns late, some even 2.5 years late, and haven't gotten any penalties because there has been a refund every year. I can't swear that there can't be a late filing penalty, but it would be small.

I would be worried that purposely filing late to avoid the trustee getting the refund could be considered fraud. If the trustee asks to see your tax upcoming tax return, they'll keep after it even if it's filed late, and they'll find out.

That being said, you could try filing an extension which you are allowed to do, which might be better than filing late... But I'm still worried about the fraud possibility.

[kylinava]

For me and my family, any tax refund is no sweat off our back. It would be nice to have the extra money and all, but 1800 + our normal tax return vs. the $120k we are in the hole!? No contest. Take it, and set me free!!!!

[lrprn]

I know lots of people do it and I am not exactly sure, but I don't think it's legal to do so.

It is perfectly legal to change your income tax withholdings any time you wish to do so.

Many people check their withholdings 2-3 times a year and adjust accordingly to ensure they get a small refund - enough to pay any state taxes they owe but little more. Uncle Sam makes the worst savings account ever! And in bankruptcy since there's such a wide variation between practices around tax refunds, you can lose a fair amount of cash this way as well if you can't protect it with exemptions.

Most of us in Ch 13 with regular paychecks and who have trustees that take some or all of our refunds watch our withholdings like a hawk throughout the year and adjust them mid-year and possibly again in Sept to ensure we don't have to give ANY money to our trustees!