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  1. #1
    Join Date
    Jun 2015
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    Default Can a Bankruptcy Trustee Take Your Tax Refund After an Order of Discharge

    My question involves bankruptcy in the state of: Arizona

    I filed in Julybof 2015 and in October received my debtor discharge (chapter 7). I today received a letter from the trustee saying she can take my taxes? Why is this? I was never told of this and no debtors came after me for any additional monies.

    I'm married and filed separate...can I my spouse and I files married but jointly so the trustee only has access to my taxes?

  2. #2
    Join Date
    Oct 2006
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    16,474

    Default Re: Losing Taxes

    Quote Quoting Azsundevil
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    My question involves bankruptcy in the state of: Arizona

    I filed in Julybof 2015 and in October received my debtor discharge (chapter 7). I today received a letter from the trustee saying she can take my taxes? Why is this? I was never told of this and no debtors came after me for any additional monies.


    I'm married and filed separate...can I my spouse and I files married but jointly so the trustee only has access to my taxes?
    Have you asked your bankruptcy attorney? That does seem odd that you would be getting a letter like that months after the discharge.

  3. #3
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    Jun 2015
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    Default Re: Losing Taxes

    Yes I put a call out to them and waiting for a call back

  4. #4
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    Oct 2014
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    8,238

    Default Re: Losing Taxes

    In a Chapter 7 bankruptcy the portion of the refund that is attributable to the pre-petition period is an asset of the bankrupt estate that trustee may take to pay towards your creditors. Since the 2015 return cannot be filed until 2016 the trustee cannot, of course, get the refund until you file the return. But once you do file it, the trustee may go after the pre-petition part of the refund. The best way to deal with that would have been to reduce your withholding and/or estimated taxes to eliminate any refund for the year (if possible) or at least reduce the refund as much as possible.

  5. #5
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    Default Re: Losing Taxes

    Quote Quoting Taxing Matters
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    In a Chapter 7 bankruptcy the portion of the refund that is attributable to the pre-petition period is an asset of the bankrupt estate that trustee may take to pay towards your creditors. Since the 2015 return cannot be filed until 2016 the trustee cannot, of course, get the refund until you file the return. But once you do file it, the trustee may go after the pre-petition part of the refund. The best way to deal with that would have been to reduce your withholding and/or estimated taxes to eliminate any refund for the year (if possible) or at least reduce the refund as much as possible.
    While I agree with this its still odd that it is just now being addressed, months after the discharge.

  6. #6
    Join Date
    Sep 2010
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    Default Re: Losing Taxes

    Quote Quoting llworking
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    While I agree with this its still odd that it is just now being addressed, months after the discharge.
    My guess is that OP was informed at the 341 hearing that the Trustee would require a copy of the 2015 tax returns and would be entitled to a pro rated portion of any refunds. OP simply did not remember this. OP will most likely disagree with my statement however, having dealt with all Chapter 7 trustees in Arizona for more than just a few years, I can tell you that standard operating procedure is to look for such refunds in all cases filed from June through the end of the year. I can also tell you (OP) that if the pro rated share is negligible (typically $500 or less) the Trustee will tell the debtor it is ok to keep the $$ - but that is the Trustee's decision.

    Des.

  7. #7
    Join Date
    Oct 2014
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    Default Re: Losing Taxes

    Quote Quoting llworking
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    While I agree with this its still odd that it is just now being addressed, months after the discharge.
    If the refund is the only issue left in the case then there is no reason to postpone the discharge. It is not uncommon for a debtor to receive a discharge in a Chapter 7 case but then receive a turnover request after the discharge. The trustee is entitled to seek the turnover at any point in the bankruptcy case, even after discharge. Indeed, it quite common for tax refunds in the exact situation the OP had: the bankruptcy petition is filed in the middle of the year, the case proceeds to discharge in a few months, but the trustee then makes a turnover request the following year for the refund due to the estate. It happens so often the Internal Revenue Manual (IRM) contains specific provisions instructing the IRS bankruptcy people what to do in this circumstance.

    It is very important to note that bankruptcy courts have revoked discharges for the failure of a debtor to meet a turnover request, so this is not something to take lightly. For an example of such a case on facts similar to this one, see Fokkena v. Klages, 8th Cir. BAP, 07-6051 SI (2008). The debtor lost his discharge for failure to turnover about $1,500 worth of a tax refund.

  8. #8
    Join Date
    Oct 2006
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    16,474

    Default Re: Losing Taxes

    Quote Quoting Taxing Matters
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    If the refund is the only issue left in the case then there is no reason to postpone the discharge. It is not uncommon for a debtor to receive a discharge in a Chapter 7 case but then receive a turnover request after the discharge. The trustee is entitled to seek the turnover at any point in the bankruptcy case, even after discharge. Indeed, it quite common for tax refunds in the exact situation the OP had: the bankruptcy petition is filed in the middle of the year, the case proceeds to discharge in a few months, but the trustee then makes a turnover request the following year for the refund due to the estate. It happens so often the Internal Revenue Manual (IRM) contains specific provisions instructing the IRS bankruptcy people what to do in this circumstance.

    It is very important to note that bankruptcy courts have revoked discharges for the failure of a debtor to meet a turnover request, so this is not something to take lightly. For an example of such a case on facts similar to this one, see Fokkena v. Klages, 8th Cir. BAP, 07-6051 SI (2008). The debtor lost his discharge for failure to turnover about $1,500 worth of a tax refund.
    I wasn't questioning that it could be done, I was questioning it not being addressed at all until months after the discharge. Despritfreya addressed that issue.

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