Just Another Reminder About Increasing Your W-4 Exemptions After Your 341

[danaf]

If you've already been through your 341, seriously consider increasing your tax W-4 exemptions so you take home more of your pay and the trustee cannot get it from your 09' tax refunds. NOW is the time to do this!!!

Most trustees want your tax returns and will go after them when you file your tax returns....even if your bk is closed. I think it really stinks and that is why I keep trying to remind people about this. They can only do this for the year you filed....not any years afterwards. So If you filed and closed this year they can take your 09' returns.

By increasing your exemptions, you take home that money and the trustee gets zero. Even if you have to put that money away in case you need to pay the gov. back a little, it's way better than the trustee getting it. If you overpayed 1k, that money is better off in your pocket than the trustee's pocket.

After my 341, I increased my exemptions to 8, and we are 2. I was lucky in that I was still getting a refund but it was too low for the trustee to administer (it was less than $500 state and federal combined). But I still had to send the checks to him and still thought he'd take it until he sent them back to me telling me that the cost for him to administer it was prohibitive and not worth his time.

Only do this AFTER your 341 because the taxes help in your schedules for showing less disposable income.

[Chowder]

Would the debtor/chapter 7 filer be notified of this, and if so when?

No mention of it at my 341. I was declared no asset.

[danaf]

I honestly do not know how each district handles it. I was notified about this at my 341. And not all districts do this however, I say better to be safe than sorry. It would be an unhappy day if your expecting a large return only to have to turn it over.

[aljohnson007]

What does the TT do, have IRS send him the refund direct or send you a letter? Does he have to file a claim to it before discharge? Just wondering as I estimate a refund of around $1500.

[justbroke]

While I haven't sent any refunds to the Trustee yet, I wouldn't bet on this strategy. I do know that people use this and lawyers actually advise some clients to do this, but a savvy Trustee will know instantly.

Here's why. (And please, not all Trustee's are savvy and I don't know if a Trustee has ever caught anyone doing the W-4 shuffle... )

You list on your Schedule J that you pay $12,000 a year in taxes ($1K/month). However, your normal refund is $2,400/year (so your taxes are actually $800/month). So, after your 341 Meeting, you make it so that $800/month is withheld by submitting a new W-4.

So, in March or so the following year, you get your refund, and it's $0.00. The Trustee will wonder where it went. They can easily see that your actual taxes were $800/month ($9.600/year), but you claimed, on your Schedule J, that you paid $1K/month or $12,000/year in taxes. They can also see prior year returns and if your income is relatively the same, gives more belief that you did the W-4 Shuffle.

Sheesh, I hope I'm never a U.S. Trustee! (The likelihood of getting "caught" doing this is so small... I only wrote what I wrote for entertainment value.)

[Amy26]

I was already claiming 8 before I filed... so, I have nothing to shuffle! And I filed 8 last year... so... they won't be gettin any tax monies from me!!

[shabam]

I guess the question is, is this technically legal or not?

I thought the trustee uses gross rather than net figures anyway.

[justbroke]

I guess the question is technically is this legal or not.

Technically, it's fraud. If you are intentionally hiding assets of the Estate from the U.S. Trustee... you are committing fraud. I see this no different than having $10K in cash under your mattress and not telling the U.S. Trustee.

Do people do these things? Yes. Do they usually get caught? No. Does not getting caught make it anything less than fraud and dishonesty? No.

Hey, but that's me.

[shabam]

I had a look at the schedules and you're right, we do list tax withdrawn under schedule I.

[pookieny]

You can claim 8 for an exemption even though you don't have that many people to exempt? I never really evern get that much back anyways, I almost always owe because I have to pay taxes on my wins.

[justbroke]

You can claim 8 for an exemption even though you don't have that many people to exempt? I never really evern get that much back anyways, I almost always owe because I have to pay taxes on my wins.

I claim 15.. I use to claim 25 when I had 3 properties.

[danaf]

justbroke - how exactly do you figure this is fraudulent? I disagree with you. Nowhere does it say that we are not allowed to adjust our W4 with holdings any time we want. Simply, it is a loophole that either works in our favor or against us, depending on our knowledge base, and whether you are in a district where trustees go after tax returns.

To further rebut against your fraud argument (although I realize you posted just for entertainment purposes) - the trustee knows how much you make, how much you are likely to get back. If you get back $1500 each year for example due to over withholding, then why wouldn't they push you into a 13 knowing that at some point in the future you will have that extra disposable income coming back to you?

When I received notice that they'd want my tax returns, there was nothing on it about 'illegally' adjusting W4 withholdings - or not to do it - or anything at all about it. That's because they are not in a position to dictate how, when, or how much we pay our taxes. Saavy or not, it doesn't matter. They are not allowed to tell you or me how much to withold, or when.

Personally I think it stinks they can do this to ch7 bk'ers. Kick us while we're down. You get through with your ch7, it's closed, you are bk'd. You try to start rebuilding with what little money you have each month. You realize you might have a hefty return coming and you look forward to putting that money away. And Bam - the trustee confiscates it.

It's their system. We just need to know how to navigate it.

[Chowder]

Much of what one might do to 'plan' for BK could be construed as fraud.

[justbroke]

justbroke - how exactly do you figure this is fraudulent? I disagree with you. Nowhere does it say that we are not allowed to adjust our W4 with holdings any time we want.

Here's the simple truth of it. Hiding property of the bankruptcy Estate from the U.S. Trustee is fraud, do you not agree?

If you're purposefully overwitholding prior to filing, then adjusting the withholding back to normal just after your 341 Meeting, then you are, unequivocally, hiding property of the bankruptcy estate (period).

To further rebut against your fraud argument (although I realize you posted just for entertainment purposes) - the trustee knows how much you make, how much you are likely to get back. If you get back $1500 each year for example due to over withholding, then why wouldn't they push you into a 13 knowing that at some point in the future you will have that extra disposable income coming back to you?

Because they expect that your Schedule I/J and Form B22A are done signed and submitted, under penalty of perjury. Why would someone purposefully "lie" on their Schedule I/J/22A, then change the withholding right after the 341 Meeting? The only reason is to hide money from the U.S. Trustee.

When I received notice that they'd want my tax returns, there was nothing on it about 'illegally' adjusting W4 withholdings - or not to do it - or anything at all about it. That's because they are not in a position to dictate how, when, or how much we pay our taxes. Saavy or not, it doesn't matter. They are not allowed to tell you or me how much to withold, or when.

No, they are not telling you how much to withhold. However, when they are basing the Asset Case on numbers you used on your Schedules to show how much in taxes you pay, and then you modify them to hide the money... you have in fact done something fraudulent.

Now let's say you did adjust the withholdings after filing (which in and of itself is not what I said was illegal or fraudulent). What I stated was that hiding the money is fraudulent. Would you, after filing your tax return, give the Trustee $2,400 even though you didn't get a refund, because you did report an inflated withholding number on your Schedules?

Personally I think it stinks they can do this to ch7 bk'ers. Kick us while we're down.

Don't even know where that comes from. I do understand that some debtors feel entitlement to every single penny that comes into their hands after filing. However, that is not the case, and any lawyer who didn't explain it well to their client, has done a disservice to their client and to the process.

It's their system. We just need to know how to navigate it.

Actually, it's our system. We the People. You ask a Court to dissolve you of... $500K, $600K, or even $1,000K (one million dollars), and then complain that they want your tax refund of $2,400.00. (I will concede that there are some issues in the system, but it's not around this particular area that you dive in to. I have problems with the means test... not administration of assets.)

For me, I would, right now, pay $5K or even $10K to discharge my $400K in unsecured debt... right now. Just give the Trustee my tax refund to discharge $400K... sure... where do I sign up?

Remember, I'm talking about the dishonest person who purposefully (and fraudulently) does the W-4 Shuffle in order to hide an asset (money) from the U.S. Trustee. I am not talking about a person who didn't know.

Much of what one might do to 'plan' for BK could be construed as fraud.

Absolutely not. There is much caselaw out there on Bankruptcy Pre-Planning and that it is not fraudulent. It is also not fraudulent for an attorney to tell the Debtor to incur new debt on the eve of bankruptcy. A common example is that attorneys instruct debtors to purchase a new car. This has been litigated to death. Lawyers are not debt management companies. They are there to provide advice and counsel to their clients. There is nothing in the Code which even references making "secured debt" on the eve of bankruptcy!

There is a distinct difference in Bankruptcy Pre-Planning and outright fraud. Example, selling your $700K home to your mother for $1... is fraud. Taking your $700K in cash to pay off your home in Florida, is not fraud. Even though you take the non-exempt asset (cash) and put it into a fully exempt asset (your home)... this is not fraud.

There are huge differences between hiding assets and converting money to a protected (exempt) asset.

[RainMoM]

So I had my 341 in August, so this means that next years tax return will be taken away ? ( the one that pays me in February) ??? even my child tax credit & and earned income credit ? plz help me understand