Turning over tax refund after discharge?

[hsanders]

We filed 6-7-10, had 341 on 7-15-10 and discharged 10-7-10. With my copy of discharge papers from my lawyer, he sent a paper stating that we have to send our tax refund when we file in 2011 to the trustee. I had no idea this was going to happen, and hadn't seen it discussed here. We were told by the lawyer that we would be required to send in a copy of our 2010 tax return, but definitely not told that we would have to surrender our refund. I don't understand since we had a complete discharge where that money would go? Has anyone else heard of this? I thought maybe for a chap. 13, but not a chap 7. Help!?

[free2breathe]

It's common. The panel trustee has the option of seizing your tax refund (considered an asset you "own" for the year you filed bankruptcy) to apportion out to your creditors. It's a case by case basis, and I've heard a few different possibilities. #1- the panel trustee will require you to forward a copy of your tax return and then they decide on seizure or not, #2- they have you send the refund to them and then they make the decision, or #3- the panel trustee bypasses you and the IRS sends the refund directly to them. They take all or part and send the rest to you afterwards.

Another bit of info I've found researching this is that they are entitled to whatever was earned before the date of filing. So, since you filed in June, they would be entitled to your tax refund pro-rated. Jan-May = 5/12 of the refund you have coming. I've decided that I'm just not going to think about any refund we might have due. If they take it, it's well worth it to have the bankruptcy over and the debts discharged.

[hsanders]

That's what I don't get though. How do they apportion it to creditors that were discharged? I understood that if we ever wanted to repay debts that had been discharged that was our option, but for them to take the option out of our hands by seizing the refund? Why discharge them and then take money back to pay them? It doesn't really make sense to me. Also the bulk of our refund is the earned income credit and child tax credit. I guess there is nothing I can do about it now, I just wish it was information that had been given to me at the start. It wouldn't have changed the need for bk, I guess I could have just been ready for it.

[free2breathe]

Just because the debt is "discharged", doesn't mean that the debt is gone. The creditors cannot come after YOU for it, but if the trustee determines that at the time of filing, assets were available to pay back any portion of the debt, then the trustee has that right.

You'll find differing opinions about EIC and child tax credit being safe. There are as many opinions about that on the web as there are websites to search. In our state, the chapter 7 trustee has actually stated that EIC is not "safe" from seizure. I know it seems unfair, but it's just another of the bankruptcy hoops we have to deal with. What it really boils down to at this point is, "you may or may not lose your tax refund for tax year 2010" ;) Don't expect to get it, and maybe your trustee will surprise you and not take it. However, from what I've read, tax refunds are the number one asset that a trustee will claim rights to.

[Silver26]

Sounds like you got the same trustee I got. It seems like a ton of extra work, that for us is only going to be max a few hundred dollars. We were told to try not to get a refund this year, which makes the whole thing even more pointless.

[tobee43]

We filed 6-7-10, had 341 on 7-15-10 and discharged 10-7-10. With my copy of discharge papers from my lawyer, he sent a paper stating that we have to send our tax refund when we file in 2011 to the trustee. I had no idea this was going to happen, and hadn't seen it discussed here. We were told by the lawyer that we would be required to send in a copy of our 2010 tax return, but definitely not told that we would have to surrender our refund. I don't understand since we had a complete discharge where that money would go? Has anyone else heard of this? I thought maybe for a chap. 13, but not a chap 7. Help!?

nope...does not sound correct to me unless you were an asset chapter 7. and still, since you filed when you did it should NOT have effected you.

actually here's a thread started by one of the bkforums atty's posted...and according to the thread it's really oct. filing dates which trigger a trustee to consider your next years tax return refund. shoot...we were told to spend ours asap before we filed.

http://www.bkforum.com/showthread.php?62847-Reminder-October-is-When-Trustees-Look-for-Tax-Refunds

[tobee43]

We filed 6-7-10, had 341 on 7-15-10 and discharged 10-7-10. With my copy of discharge papers from my lawyer, he sent a paper stating that we have to send our tax refund when we file in 2011 to the trustee. I had no idea this was going to happen, and hadn't seen it discussed here. We were told by the lawyer that we would be required to send in a copy of our 2010 tax return, but definitely not told that we would have to surrender our refund. I don't understand since we had a complete discharge where that money would go? Has anyone else heard of this? I thought maybe for a chap. 13, but not a chap 7. Help!?

let me retract what i wrote...apparently you were discharged in oct....i thought it was just for those that filed their petitions in oct., however, maybe it's discharge as well.

[free2breathe]

It's quite possible, and maybe even probable, that those of us that have no assets and smaller refunds may not realistically have to worry about the refund being taken. I won't let myself set myself up for disappointment though. If it's a possibility, I'm going to plan for the worst and hope for the best

Looking at it realistically, I'll have a probably refund of $1100. It is basically due to child tax credit. I filed in September on the 270th day of the year. So they have the option to take 270/365 of my refund. It amounts to about $860. That is a drop in the bucket compared to the debt. Logically I tell myself the trustee won't even bother. But, if he does, I'm not counting on that refund. Hmmm, has the need to file bankruptcy made me paranoid, or jaded? LOL

Counting on a funny reply from you, tobee ;)

[tobee43]

It's quite possible, and maybe even probable, that those of us that have no assets and smaller refunds may not realistically have to worry about the refund being taken. I won't let myself set myself up for disappointment though. If it's a possibility, I'm going to plan for the worst and hope for the best

Looking at it realistically, I'll have a probably refund of $1100. It is basically due to child tax credit. I filed in September on the 270th day of the year. So they have the option to take 270/365 of my refund. It amounts to about $860. That is a drop in the bucket compared to the debt. Logically I tell myself the trustee won't even bother. But, if he does, I'm not counting on that refund. Hmmm, has the need to file bankruptcy made me paranoid, or jaded? LOL

Counting on a funny reply from you, tobee ;)

well...actually the only thing that gets between ME and being FUNNY is MY MONEY!!! don't be takin it away please!

i really don't get why OP's trustee is asking for the refund when they filed in june??? we did get a rather large on last year, however, i know it's likely we may have to pay this year.

filing in june is what has been questioning the situation...but once again if it's an asset case, it could very well happen...i guess, actually, according to hhm...oct is the trigger month...

[keepmine]

The bk may be discharged but, not closed to allow the trustee to administer the asset {any refund}

[Fallonedward]

I will owe about $1K. If the trustee wants my non refund he can pay the tax bill instead

Sounds like you got the same trustee I got. It seems like a ton of extra work, that for us is only going to be max a few hundred dollars. We were told to try not to get a refund this year, which makes the whole thing even more pointless.

[tobee43]

The bk may be discharged but, not closed to allow the trustee to administer the asset {any refund}

absolutely...i have actually seen one that was discharged and still open after 3 years...terrible! that's why i prefer that little piece of paper stating an order of no asset distribution and the trustee has released the estate...then the discharge itself.

[tobee43]

I will owe about $1K. If the trustee wants my non refund he can pay the tax bill instead

LOL!! me first!!!

[free2breathe]

I will owe about $1K. If the trustee wants my non refund he can pay the tax bill instead

LOL, now that sounds like a good plan ;)

[Jovigirl22]

We plan on filing next week, and were told the trustee will want all of our refund next year. He also pointed out that they will make sure I took every deduction possible, therefore making "their" check the maximum. So for example: We pay daycare every week, so, there had better be a child care deduction on the 2010 return. Now, honestly, what do people do that arent able to get a SSN number from their provider.........it isnt easy to find good, reliable daycare that reports their at home income. Illegal, yes, but parents sometimes dont have the option.

I am not happy about losing the return, but at the same time, small price to pay if we get a no-hassel chapter 7