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  1. #1

    Default Married, Filing BK7 Individually Can Trustees Take Spouse's Portion Of Tax Refund

    Hi.

    I am in NY. My husband is the sole wage earner in our household and we file our taxes married filing jointly. If I file BK7 individually, can the trustee take the entire tax refund that is left over after the $2500 cash exemption? I would think legally he could only take my 1/2 of the refund refund, since the other 1/2 is an asset of my spouse who did not file BK,

    While I don't like it, I certainly understand the trustee taking my part of the refund, since it is my asset, but my husband's half is his asset, can the trustee legally take my dh's portion? It seems like he wouldn't be able to if for nothing else than the refund is based on his sole earnings. The refund is not based on withholdings but strictly EIC and Child tax credit and while these two refundable credits are exempt in several states, they aren't in NY.

    Thank you in advance for your time.

    Adding to the question if I may...what are the other filing options for the above question..would it be better to file head of household for the person NOT filing for bk?

  2. #2
    Join Date
    Jan 2008
    Location
    Alabama
    Posts
    114

    Default Re: Married, Filing BK7 Individually Can Trustees Take Spouse's Portion Of Tax Refund

    I am not an attorney so don't consider this advice, you do need to ask these questions of your Bankruptcy attorney at your initial consultation.... but I will tell you what I have had experience with.

    I am not familiar with NY exemptions, but can say that in my experience here in AL the Trustees recognize a joint asset as just that, therefore your husband is entitled to his half of the tax refund and they should not require you to surrender whatever that half comes out to be. It would be the same as, for example, if I were to file Chapter 7, and knowing there is $20,000 equity in my home I stand to lose it, but since the deed is in both mine and my husband's name if the Trustee did sell the property to benefit my creditors not only would I be entitled to the amount of my homestead exemption, but my husband would be entitled to his half of the equity, leaving what is left after costs of selling etc to benefit the creditors. I would think this would be looked at the same way across the board but am not certain of that. This is a question you probably want to ask your attorney prior to filing your taxes.

    I know nothing about tax laws, but I have dealt with clients who were in similar circumstances (i.e. their husband was the only wage earner and they stood to lose 1/2 of tax refund if taxes filed jointly), and we always recommended they consult a tax professional to determine what filing options they had. We did have clients who determined they were not required to file a tax return because of their income or lack thereof, and in those instances I believe the spouse filed on their own as head of household and the tax refund was then not an asset or potential asset of the debtor, but don't know if this would be looked at any other way in another state.

    Again I would say talk with both a tax professional and your bankruptcy attorney before filing your taxes if possible. If you have not seen an attorney yet, now is the time to do it, and ask him all of these questions. You do not want to wait until after you file your taxes or even after you get your refund back to consult an attorney because by then you could have already created issues in your potential Bankruptcy.

  3. #3

    Default Re: What Happens To A Joint Tax Refund in an Individual Spouse's Bankruptcy

    Hello and thank you for your reply. I am hoping the trustee will also view the tax refund as a joint asset.

    I wish we could file in a certain way so that the refund is only in his name but we can't. You cannot be married and file Head of Household. Also to qualify for the EIC and CTC you cannot file Married Filing Separate.

    http://www.irs.gov/publications/p501/ar02.html#d0e2117

    Head of Household

    You may be able to file as head of household if you meet all the following requirements.

    1.You are unmarried or “considered unmarried” on the last day of the year.

    2.You paid more than half the cost of keeping up a home for the year.

    3. A “qualifying person” lived with you in the home for more than half the year (except for temporary absences, such as school). However, if the “qualifying person” is your dependent parent, he or she does not have to live with you. See Special rule for parent, later, under Qualifying Person.

  4. #4
    Join Date
    Jan 2008
    Location
    Alabama
    Posts
    114

    Default Re: What Happens To A Joint Tax Refund in an Individual Spouse's Bankruptcy

    Yes I guess based on that you would be filing jointly. I am not sure how many of our past clients did it, and I am not certain they did things exactly the way the IRS wants them to, we didn't have anything to do with handling their taxes. I really believe that the tax refund will be viewed as a joint asset, and that your husband's half will not be property of the estate, but again this is one of the first questions you should ask your attorney.

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