Tax Return - will trustee take it?

[ldriscoll]

I am an unemployed single mother and filed my Chapter 7 on December 14, 2011. My 341 hearing was January 11th, 2012 and I felt like the trustee really gave me a hard time at my hearing. He did ask me if I had received a tax return in 2010. I did not receive tax returns the last two years, yet have around $900 coming back to me this year, after paying $150 to the state of Colorado. I did not qualify for EIC as pulling my money out of my IRA early (about 2600 to pay pre-filing bills and survive) put me about $1000 over the limit for EIC.

I am curious if this $900 return is large enough to warrant the trustee to take it, as a significant portion of this return came from my child tax credit and child care costs from 2011.

The thing is, I desperately need to repair the front axle on my car. I worry that if I do this with the tax money I will get in trouble when they come to take it from me. I do not have any disposable income at all, yet for some reason the trustee wanted to contest this, although I qualified for a waiver of the bankruptcy filing fee.

I filed ProSe and used a paralegal to prepare my paperwork. The trustee gave me a hard time about that too... he asked how I could afford a paralegal? I told him that I looked into preparing my paperwork on my own but was terrified by jargon and process and worried I would mess it up, so I scraped together the $300 as it was my best option.

So, with all of this in my history at the 314 meeting, is 35000 gross income and 21000 taxable income enough for the trustee to take my $900 2011 tax refund?

My case has not been discharged yet. I did not have any liens, no house and my car was worth so little I got to keep it.

Thank you anyone who may have insight!

~ Linda

[LadyInTheRed]

Your income is not the relevant to the issue of whether you get to keep the refund in a Chap 7. Your refund is an asset because at least a portion of it was being held for you by the government on your date of filing. If you can't exempt it, the trustee can take it to distribute it to creditors. I'm guessing you filed in October or November which means you may not have to exempt all of it, because all of the over-withheld funds had not yet been withheld. If you have an exemption available to protect the refund, you may want to amend your schedules. If you don't amend your schedules to exempt the refund, don't spend it until your case is closed.

[ValleYum]

Did you get a Notice of No Distribution after your 341 on PACER? If he did, that *should* be a good indicator that your tax refund is yours to keep.

I found this on a Denver BK attorney's website:

Colorado Revised Statute 13-54-102(1)(o) provides an exemption for the child tax credit and states: “The following property is exempt from levy and sale under writ of attachment or writ of execution . . . The full amount of any federal or state income tax refund attributed to an earned income tax credit or a child tax credit[.]”

The 10th Circuit Court of Appeals Bankruptcy Appellate Panel this week released its decision in two cases clarifying what exactly the Colorado child tax credit allows. In these cases, the debtors exempted the portion of their federal income tax refunds attributed to the child tax credit, but the trustee objected. The bankruptcy courts sustained both objections, concluding that the child tax credit does not constitute property of the estate and that because the credit itself is non-refundable, none of the refunds can be “attributed” to it.

The Bankruptcy Appellate Panel reversed the bankruptcy courts’ decisions, reasoning that had the debtors not claimed the child tax credit, their tax burden would have been higher, and thus their tax refund lower.

http://coloradobankruptcyguide.com/2869/what-is-the-child-tax-credit-exemption-in-bankruptcy/

I hope you get to keep your refund and get your car fixed. Best wishes for a speedy 60 days (almost halfway there!) and your fresh start!

PS: Lady's advice above is, as always, awesome and if possible you should baby the axle and wait to spend the $$ until your case is discharged and closed.

[LadyInTheRed]

I thought she said that she said she didn't qualify for child tax credit. But I see now that it is the earned income credit she didn't qualify for. Nice find ValleYum!

I think the difficult decision to make now is whether to file an amendment to claim the exemption, or lay low and hope it doesn't become an issue.

[ldriscoll]

Thank You for your thoughtful suggestions.

Does anyone know what happens if I DO fix my car and then the trustee decides to collect my refund? Does this become a situation where I am taxed and fined further, or will I simply have to pay back the portion that I used?

Also, how do I go about filing an amendment to claim the exemption? I hear that CO is about 30 days behind and its taking 4 months to discharge ch 7 cases... wowee!! This means that I may not receive notification about discharge until mid-April 2012.

[ldriscoll]

OH... and ValleYum... what is *PACER* ?

[ValleYum]

OH... and ValleYum... what is *PACER* ?

I can answer the PACER question but I don't know about how to file an amendment or what would happen if you spent your tax refund and the trustee wanted it - but I am sure someone else will pop in and give their advice and share their wisdom.

PACER is the electronic court system (federal courts) that lets you see the status, documents and information about your case as it is posted by the court clerks - almost in real time.

You can register online using a debit card - there is no charge if your fees do not exceed $10 per quarter. If you signed up today - your use though March 31st would be billed to your card sometime in April.

BEFORE you register and use the system, read this sticky on how to not run up a huge PACER bill: http://www.bkforum.com/showthread.ph...Guide-amp-Tips

Then you can register here: http://www.pacer.gov/register.html

After looking at your PACER account, you would know if the trustee filed a Notice of No Distribution in your case (that's a good thing!) and have a better idea of what is going on.

If that scares you or you are worried about the $$, there is a free Electronic Bankruptcy Noticing system that will send you an email when your case is updated. You can read about and sign up here: http://ebn.uscourts.gov/register/link_works.adp

If you have any more questions, post here and we all will do our best to try to help you.

[ldriscoll]

Thank You! My paralegal helper just looked and the trustee has already signed off and closed my case! I am so relieved. Now I just wait for the discharge paperwork.

I suppose that this is a good example of someone filing chapter 7 in December and NOT having to hand over a tax return. I am elated to be this statistic

Thanks for your help.