Let's Talk about Tax Returns

[LuciluS]

After reading several posts, I want to know about 2008 tax returns which we received in April of over $5,000. We will be filing 9/30/09. Do we need to tell our Attorney to exempt that portion? Some was spent on tires for both vehicles, but rest was spent on normal bills as hubby was very sick & did not get paid for practically the whole month of April. If so, I don't understand the hows, whys, etc. when this is last year's income.

Granted our 2009 tax returns will not be that large because I was receiving monthly monies which had 20% federal withhold & it stopped this past Feb. Thus, the waiting to file using Mar-Aug Income. But do we need to tell him to also exempt this too.

How can a Trustee take both years' tax returns? Come on Justbroke...give me some good News LOL!

Luci

[justbroke]

Let's talk about that other three letter word, that also ends in "x".

How can a Trustee take both years' tax returns? Come on Justbroke...give me some good News LOL!

Easy... you receive the 2008 tax return and never spend it. You leave it on the table by leaving it in your checking account. Unless you can exempt the "leftovers" as well as the future tax refund... I'm sorry, but they are on the table for the Trustee to get a bite of.

If you file 10/1/2009, then the Trustee would only be entitled to 3/4th of the refund because they are only entitled to money that you have overpaid (overwithheld), prior to filing. So you'd only need to find exemptions for 75% of your anticipated refund (if filing on or about 10/1/2009).

[bankruptsee]

Our attorney specifically included our tax return into our monthly income... is this to protect the trustee from taking it? She basically took added $300 to our monthly income.

[berrymom35]

We got a return in April of about $1800...our atty told us that it was ours to keep and that it would not be included in our 6 month income...we filed two weeks ago and the issue of the tax return has not come up in any conversation with our attorney. If the TT asks us about it at our 341 in a couple of weeks...we'll let her know that we used it to make ends meet..which is what we did! We have not been told by anyone that we will owe this money to the trustee or anyone else. How can they tell you that your future tax returns will be wanted? This is a chapter 7...not a 13!

[justbroke]

Our attorney specifically included our tax return into our monthly income... is this to protect the trustee from taking it? She basically took added $300 to our monthly income.

Absolutely! It is actually required in some Districts (that the Attorney divide the average/expected refund by 12 and include it as income).

I have noticed in some Districts that they use a special Spreadsheet to "validate" your Schedule B22A (Means Test). This spreadsheets looks at a bunch of things including over/underwithholding of taxes!

[justbroke]

How can they tell you that your future tax returns will be wanted? This is a chapter 7...not a 13!

Because a tax refund is a return of "overwithheld" taxes. It is actually your money, received for that time period, but was deducted from your payroll check due to your exemptions.

So, the money is really already earned. It's like it's sitting in the bank. The Trustee can get to funds in a bank, so the IRS is no different. To make it more simple... the IRS took more money from you than they should have. Just because they give it back to you after filing a tax return, doesn't mean that it wasn't yours.

As a matter of fact, the IRS will even tax you on the refund if you itemized it in the year in which it was paid. That tells you alot.

Okay, so I probably just made this more unclear than ever. It's all Lucilu' fault.

[berrymom35]

Don't worry I think I understand..so how will they determine how much of next years tax return is owed? What if after our discharge we get a fabulous pay raise and the bulk of the mone is earned during the opposite 6 month period?

[justbroke]

Don't worry I think I understand..so how will they determine how much of next years tax return is owed?

Your lawyer will work this out with you. Generally, the lawyer is able to exempt all of your refund so it's usually a non-issue (when you have a good lawyer). Just remember to ask your lawyer about exempting your refund!

What if after our discharge we get a fabulous pay raise and the bulk of the mone is earned during the opposite 6 month period?

That doesn't count. The bankruptcy is based on your earnings prior to and including the date your filed. You could literally win the lottery the day after filing for Chapter 7, and keep all the lottery earnings!

The Trustee doesn't take "future" earnings (in a Chapter 7), they are taking earnings that were overwithheld by the IRS... plain and simple.

[klandsb]

Last year I was able to use my son as a dependant (2008) but in (2009) I will not be able to ... This will make a huge difference on my tax refund if I even get one If they ask and I give them that info it could be verified so it shouldnt be added as income if I am thinking correctly ??

[klandsb]

You know whats funny is my step sister filed for bankruptcy for 40,000 and hit the lottery for 125,000. I am not sure how far into she was but she had to give them the 40,000 and was unable to file or complete it .... Just last yr...

[music12]

You know whats funny is my step sister filed for bankruptcy for 40,000 and hit the lottery for 125,000. I am not sure how far into she was but she had to give them the 40,000 and was unable to file or complete it .... Just last yr...

hey, can you check and let us know? we would all benefit from learning about your step sister's experience.

i find it annoying that they take lottery winnings when the bk code does not provide for that, so there is no authority for the trustee to take it.

[LuciluS]

Our tax refunds basically are because of our out-of-pocket medical and prescription bills. Our Rx's bills are $500 a month and that's with hubby having insurance through his company and I have Medicare A & B, plus a supplemental policy for some coverage A & B don't pay for and also RX coverage. However, 2 of my monthly meds I have to pay full price for.

So the 2008 tax refunds need to be specifically expensed? Can I include our mortgage and truck payment & other necessities because hubby did not receive much pay for April 2009? So no exemption needed there right?

Guess, I just need to ask our BK Attorney whatever we have left after totaling of Exempted Assets, he needs to use that amount to exempt our 2009 Tax Return?

LOL! @ being Luci's fault!

[aces67]

Always ask your lawyer! Our lawyer had to specifically exempt ours. He didn't at first and then at our 341 the trustee brought it up and told him that it was not exempted. My lawyer immediately filed an ammendment to exempt it.

[Iwantmyname]

could you just lower your witholdings for 2009? Or is that too weird.

[justbroke]

You know whats funny is my step sister filed for bankruptcy for 40,000 and hit the lottery for 125,000. I am not sure how far into she was but she had to give them the 40,000 and was unable to file or complete it .... Just last yr...

I'd like to know the specific of when she filed, when the won the lottery, and under which Chapter of bankruptcy she had filed. There is a difference in treatment of lottery winnings for Chapter 7 versus Chapter 13 and 11 cases.