Tax refund money spent! Now what?

[brokebutcute]

We were in a chapter 13 and received our federal and state refunds. We used them and now that we are modifying to a 7, our new trustee is wanting the money. We are short $800 of the $3000 we need to give her. Will this affect our discharge in 60 days?

[justbroke]

We were in a chapter 13 and received our federal and state refunds. We used them and now that we are modifying to a 7, our new trustee is wanting the money. We are short $800 of the $3000 we need to give her. Will this affect our discharge in 60 days?

In my State, at least, the Chapter 7 Trustee CAN NOT have post-petition tax refunds. This is well settled caselaw, at least in the 11th Circuit (GA, FL, AL). Since your tax refund is "post-petition" (after filing Chapter 13), it is not the property of the bankruptcy estate.

Did you file through an attorney? Is your attorney fighting for your? What did your attorney say? What State are you in?

(Worse case, is that "if" it's precedence in your District -- which I can't believe, but it could be -- that post-petition earnings are property of a Chapter 7 bankruptcy estate, somehow... then you could pay the $800 in installments over some period of time. The Chapter 7 Trustee will just hold the case open. It would not affect discharge, but will affect the closing date so that the Trustee can administer the money.)

[brokebutcute]

We are in AZ and our attorney just told us that we have to send her the money and she can decide whether or not to keep it or give it back to us. I have the Federal return money saved up (It's my emergency fund) just not the state refund. I'll have to run what you posted past my attorney because he never said anything like that to us. I'm really hoping YOU are right!!

[justbroke]

We are in AZ and our attorney just told us that we have to send her the money and she can decide whether or not to keep it or give it back to us. I have the Federal return money saved up (It's my emergency fund) just not the state refund. I'll have to run what you posted past my attorney because he never said anything like that to us. I'm really hoping YOU are right!!

Well, Arizona may be different as it's in the 9th Circuit. In our Circuit, 11th Circuit (AL, GA, FL), there is lots of caselaw which indicates that, in a confirmed case converted from Chapter 13 to Chapter 7, the tax refunds are not part of the bankruptcy estate. The reasoning was that the conversion date cancels the Plan of Reorganization (the Plan).

Now if you received the refund before you converted, that may be a different story.