Question about wildcard in Ohio

[LadyInTheRed]

The only issue I see is that the attorneys advice would not have mattered, unless the debtor waited another year, spent their refund, and then filed.

But, I think it does matter when the petition was filed early in the year. The debtor would not have had to wait another year. The attorney told the debtor that his 2012 refund would be exempt. If he told him it wasn't exempt, the debtor could have delayed his BK filing, filed is tax return, got the refund and spent it on attorney fees and necessary expenses. Depending on the size of the refund, that could have happened in the first 6 months of the year. Assuming similar withholding and tax liability in both years, the 2013 refund at the time of filing would be a smaller asset to either exempt or turn over to the trustee. There is the issue of whether the refund received within 6 months of filing would be income that would cause the debtor to fail the means test.

We don't have all the facts to know whether the incorrect advice caused harm to the debtor. But, it is possible that it did. I don't think this is worth a malpractice lawsuit. But, if I were the debtor, I would request some compensation, starting by requesting the entire amount that has to be paid to the trustee and hoping to at least settle at a lower amount. I'd probably wait until after discharge.

[justbroke]

LITR, excellent observation. I knew someone would catch me!

[bk2009]

I received a letter from the trustee on Friday. He wants the remaining amount of the tax refund, after the EIC and child tax credits and my husband's exemptions. The lawyer hasn't even tried to show that we spent it on legitimate things - ie HIM and household bills that we were catching up. The attorney fees alone negate any possible balance. I have emailed him that he needs to get off his duff - in nice, polite terms. ;) Pointing out that he advised us that both me and my husband were able to use the wildcard exemption for the tax refund and that he was wrong about that, but that is why we hired him. Additionally, I have told him that he needs to point out that we paid him and spent it on legitimate expenses - so he needs to get to work and get the trustee to see that we don't owe anything.

Late this week he was still trying to sell it as a great deal. I'm sorry, it's not. I want a nice, open and closed case, I don't want an asset case, I want a non-asset case, so he needs to get to work on this. I expect this.

[LadyInTheRed]

bk2009, what you spent the refund on is irrelevant. It was an asset on the day you filed and must be exempted or turned over to the trustee. There is nothing your attorney can do to change the fact that your case is an asset case. The best he can do is to compensate you for his bad advice.

[justbroke]

LITR touches on something important. If there was anything left over from the tax refund on the day that you filed, that is probably the issue. I can see a subtle distinction in what you "could" have exempted, but the Trustee may have a point. If your refund as $X and you spent $Y before you filed, then $Z is left. You can't simply apply the exemption to $Z. I believe the Trustee is saying that the exemption should be $E, so the Trustee wants $X - $E (that residual/leftover amount).

But, I do have trouble with the Trustee and basing the exemption on money you already spent before filing (if that's the case). I believe the Trustee should be going after $Z after your exemptions (so $Z -$E)... if that makes any sense.

Otherwise, it is confusing.

[LadyInTheRed]

I've been assuming the refund was received after the petition was filed. But I see now that BK2009 hasn't actually said that. I agree with you, JB, that the trustee can't go after money spent before filing (unless there was an avoidable transfer which doesn't seem to be the issue).

[bk2009]

The refund was received before the petition was filed, so it was partially used on household expenses as well as for the filing. The trustee doesn't care what we had when we filed, he only cares about the amount of the tax refund itself. Does that make more sense? The trustee is going after the total amount - DHs wildcard - EIC - child tax credit. My argument is that our lawyer should be arguing that either he look at the amount on the day we filed and minus the wildcard, EIC and child tax credit OR the total refund - expenses that should be allowed - DHs wildcare - EIC - child tax credit. Either way, there would be nothing for him to take, as either way our exemptions would cover the amount.

[LadyInTheRed]

The refund was received before the petition was filed, so it was partially used on household expenses as well as for the filing. The trustee doesn't care what we had when we filed, he only cares about the amount of the tax refund itself. Does that make more sense? The trustee is going after the total amount - DHs wildcard - EIC - child tax credit. My argument is that our lawyer should be arguing that either he look at the amount on the day we filed and minus the wildcard, EIC and child tax credit OR the total refund - expenses that should be allowed - DHs wildcare - EIC - child tax credit. Either way, there would be nothing for him to take, as either way our exemptions would cover the amount.

In that case, the cash you had on the day of filing is what should be subject to exemption. The amount of the refund is irrelevant. What is relevant is how much of the refund you had left on the date of your filing. This is pretty basic and your attorney should definitely fight the trustee.

Was the refund listed on your petition or was cash listed on your petition?

[justbroke]

I agree. It's the amount on the date that you filed, not the amount of the refund. You would then attempt to exempt as much of the refund as possible using exemptions. Whatever is not protected by exemptions, becomes an asset of the Estate.

[bk2009]

The cash amount we had on hand was listed on the petition. The trustee is trying to use both dates - the date that we received the refund and the date that we filed. He's trying to say that my DHs wildcard was applied the day that we received our tax refund and deduct it, along with the EIC and child tax credits on that date. Then, he is saying that we paid our attorney with that cash was exempted. I asked our lawyer this morning for clarification as to what date the trustee is using, as it's my understanding that it only matters on the day of filing and that he can't go back and apply the exemptions to that day.

[justbroke]

Yes, this is starting to get a bit confusing. If the Trustee is trying to apply exemptions BEFORE The filing date, that does not make one bit of sense! You exempt property on the day that you file.

[bk2009]

Okay, so justbroke hit the nail on the head, and what we argued with our lawyer. He seemed to want us to make an offer to the trustee, I told him I thought he wasn't fighting hard enough.

I opened our mail today (from yesterday, it came after 6 pm so I didn't get it until today) and I have a discharge letter. Does this mean that we won't have to pay him anything and that the trustee is dropping his argument? Or could we still have to pay? I'm sending an email to our lawyer, but wanted to ask here too, since you all seem to know more than he does.

[justbroke]

I opened our mail today (from yesterday, it came after 6 pm so I didn't get it until today) and I have a discharge letter. Does this mean that we won't have to pay him anything and that the trustee is dropping his argument? Or could we still have to pay? I'm sending an email to our lawyer, but wanted to ask here too, since you all seem to know more than he does.

The discharge has nothing to do with the asset determination, administration of your case, and the subsequent closing. You are now in the "administration" phase of the bankruptcy. Because you have been classified as an asset case, the Trustee must administer the case and recover any available assets.

I still do not believe that a Trustee can recover any proceeds of a Tax Refund that was spent by you (the debtor) prior to filing. It just makes no sense. Maybe your attorney listed the Tax Refund as an asset of the bankruptcy. The attorney should not have done that, in my opinion. (Take that with a grain of salt though.) On your schedules, you should have just shown it as "Cash On Hand or In Banks"! Not as a tax refund! Since you already had the tax refund, it was "reduced" to cash, so is just that... cash on hand. I am saying that if you had a tax refund due AFTER your filing date, then you schedule that as an "Anticipated Tax Refund" on your Schedules and you would exempt a portion or all of that amount.

Otherwise, I'm missing something... and that could be the case. Ask your attorney, under what theory of the bankruptcy code or your State's exemptions could the Trustee go after the entire amount of a refund received prior to filing, is now "cash on hand", and the amount has been reduced on living expenses. I'm wondering if the attorney listed it as a "Tax Refund" on the schedules and THAT is what's throwing the Trustee. I would think that it would just be listed as "cash" as I stated above. People only use the words "tax refund" on the schedules when referring to an anticipated and not yet unpaid tax refund. People use "cash" on the schedules when the money is already in the bank on the day of filing.

[LadyInTheRed]

Congratulations on your discharge!

I agree with JB. Based on what you've told us, you had cash on the date of filing, not a tax refund. If a refund is what was listed on your petition, maybe the petition needs to be amended. You need to pin your attorney down on this. Unless there was a voidable transfer, it makes no sense for the trustee to try to get any portion of your tax refund that was already spent on the date you filed.

[bk2009]

Well boo that the discharge doesn't mean that he can't go after some assets that should be exempt!