After discharge tax refund question?

[cole1977]

We filed 6/4/10. We usually get around $2,000 in tax refund.

We actually owed a little bit this year, because my husband changed exemptions a few too many times last year to try to stay above water and make his paychecks bigger.

Husband might end up with severance package later in the year that will be heavily taxed possibly leading to very big tax refund next year. Trustee never asked at 341 meeting about future tax refunds. Since we filed in June do they not care about next years refunds (it will be more than 6 months post filing) or are tax refunds counted differently?

[Fallonedward]

We have owed money every year for the past 7 years but this year with a severance payout and no income for one of us, I'm thinking we might have an refund. I have always taken 0 excempts but now I have taken 4.

So if I get a refund does the BK court get it and how many years would they be entitled to get one?

[tcreegan]

tax refund

Hi all, from what I have read the only tax refund they go after is for the year prior to the filing. If you file bk in 2010, they want to know about your 2009 tax year refund. At least that was our experience here in Colo.

Tom in Colo

[jdcat]

Definitely ask your attorney about this. In our district all tax refunds must be given to the trustee and after receiving it the trustee then decides whether or not it's enough to bother with. But it is mandatory. We filed 4/29/2010 and will be handing over our refund in March. I doubt the trustee will bother with it because we changed our withholding to have more to live on as well so it won't be as big as usual. *Keeping fingers crossed*

[Fallonedward]

Definitely ask your attorney about this. In our district all tax refunds must be given to the trustee and after receiving it the trustee then decides whether or not it's enough to bother with. But it is mandatory. We filed 4/29/2010 and will be handing over our refund in March. I doubt the trustee will bother with it because we changed our withholding to have more to live on as well so it won't be as big as usual. *Keeping fingers crossed*

So if that is the case how many years into the future can the trustee claim your refund?

[Dougie011]

From what I understand is if it is a 13, they can take it until after your discharged. A 7 is different though. I am not sure exactly how everything works though.

[jdcat]

So if that is the case how many years into the future can the trustee claim your refund?

Just the one. Unless you're in a chapter 13.

[Fallonedward]

Just the one. Unless you're in a chapter 13.

Thanks for the info

[Silver26]

Our trustee told everyone before our 341's that we are too send him our tax refund and he will decide how much we get back.

[limabean]

I don't understand this at all. I just received a discharge - yay! But if I were to get a refund next year (2011), it would be due to contributions/tax payments I made during the whole year 2010. On what grounds may the Trustee decide how much is pre or post discharge? And what forum would you use to fight their determination if the close were closed?
My Trustee did not mention it as a future reportable event although she was VERY clear about inheritances.
Can anyone explain the legal grounds for this assertion? Mine was a no-asset Ch 7 case.

Thanks!

[Dougie011]

I don't understand this at all. I just received a discharge - yay! But if I were to get a refund next year (2011), it would be due to contributions/tax payments I made during the whole year 2010. On what grounds may the Trustee decide how much is pre or post discharge? And what forum would you use to fight their determination if the close were closed?
My Trustee did not mention it as a future reportable event although she was VERY clear about inheritances.
Can anyone explain the legal grounds for this assertion? Mine was a no-asset Ch 7 case.

Thanks!

I might be mistaken, but depending on when you file, I think what the trustee would take is prorated for the time before you filed.

[gmk]

My take would be that, unless specifically asked for, that any future refunds post discharge are yours. If you get one, keep it.

[keptdigging]

I was answering a similar question in another thread and want to offer this info: the penalty for underwithholding is just interest--at a reasonable rate (someone was thinking there was a 25% penalty!) for the amount underwithheld. And there's no penalty at all if you cover 90%. So underwithhold, worst case, you'll owe 3 or 4% of the amount underwithheld to the IRS. Overwithhold and get a refund and you risk 100% to the trustee. It's easy money to the trustee because so few people adjust their withholding. It's also 100% avoidable.

The only catch is that you will need the balance in April to pay the IRS.

[tcreegan]

huh?

jdcat, you are discharged, closed, and a trustee's report of no distribution.....and they want you to hand over your 2010 tax refund in March of 2011? What district are you in? Sounds crazy....

Tom in Colo

[OhioFiler]

I might be mistaken, but depending on when you file, I think what the trustee would take is prorated for the time before you filed.

This is correct. The court may choose to claim a portion of your refund next year based on the percentage of the refund you earned when you filed. A person filing in July has earned 6/12ths of the 2010 tax refund. A person filing in December has earned 11/12ths.

If the courts couldn't claim your refund, too many petitioners would increase their withholding prior to filing as a way to stash cash in the US Treasury then withdraw it after the bankruptcy when they file their return the following Spring.

If you think this may be a problem for you I would suggest using any available exemptions to protect the future payout.

The best thing to do is avoid receiving a refund by managing your withholding. Obviously, in the case of a severance payout this is not completely possible.

Finally, I have routinely made errors when I initially filed my returns and have had to file amended returns several months later to claim the additional refund I missed when I filed my tax returns the first time.