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  1. #1
    Join Date
    Jan 2008
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    11

    Default Tax Refund During Bankrutpcy

    Chapter 13 plan was confirmed in 5/05. This is the first year the new trustee has asked. by letter, to supply a copy of return and refund. If we don't comply, what can happen? Also, most of our debt was back taxes, I am considering asking the IRS to apply the refund to taxes owed and then attempt to get the over payment back once our plan is finished. Any advice?

  2. #2
    Almosthome Guest

    Default Re: Tax Refund

    Quote Quoting grandmadebb
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    Chapter 13 plan was confirmed in 5/05. This is the first year the new trustee has asked. by letter, to supply a copy of return and refund. If we don't comply, what can happen? Also, most of our debt was back taxes, I am considering asking the IRS to apply the refund to taxes owed and then attempt to get the over payment back once our plan is finished. Any advice?
    If you don't comply, the trustee may do nothing or the trustee may move to dismiss based on a lack of cooperation of the debtor. I suspect s/he could also move to recover the funds from you or intercept them if not yet sent. As for getting the IRS to credit you towards your debt - I think a wiser way (and this would probably satisfy the trustee) - would be to have the check sent to you (or the trustee) to be paid into the plan. You have to make all those payments anyway, right? So why not kill two birds with one stone. Technically the IRS cannot take that money to satisfy a pre-petition debt because it would violate the automatic stay.

  3. #3
    Join Date
    Jan 2008
    Posts
    11

    Default Re: Tax Refund

    The trustee wants to take the refund and apply to unsecured debts. Not pay it into the plan. Thats the part I don't understand, if b/k is suppose to help you rebuild. Most of our debt was back taxes owed, so that is why I thought I could tell the IRS to take the refund and apply towards our taxes owed. Thanks for your reply. I guess we thought that since we filed before the reform in Oct. 2005, this wouldn't affect us.

  4. #4
    Almosthome Guest

    Default Re: Tax Refund

    Quote Quoting grandmadebb
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    The trustee wants to take the refund and apply to unsecured debts. Not pay it into the plan. Thats the part I don't understand, if b/k is suppose to help you rebuild. Most of our debt was back taxes owed, so that is why I thought I could tell the IRS to take the refund and apply towards our taxes owed. Thanks for your reply. I guess we thought that since we filed before the reform in Oct. 2005, this wouldn't affect us.
    Oh right, the IRS debt is priority, not unsecured (or maybe both - look at the proof of claim). But something you said cannot be true - I am pretty sure that the trustee must pay the money into the plan. How would the trustee pay the unsecured debts otherwise - sign the check over to them? I think what you mean is that the tax refund would be on top of the secured and priority debts under the plan. Also, very important - rule #1 is to look at the plan. Does it say what happens to tax-refunds? That would be controlling. I don't think the pre/post 2005 issue changes this situation.

  5. #5
    Join Date
    Jan 2008
    Posts
    11

    Default Re: Tax Refund

    The letter says we are required to fund our confirmed plan with all our disposable income. Since the trustee deems the refund as disposable income and above the net monthly income on our schedules, he says he will distribute the money to our unsecured creditors. He also states, the refund cannot be used against our monthly payment, it is in addition to our monthly payment.

    This is direct from Doug Neway, the new trustee in Jacksonville, FL. Mamie Davis the previous trustee never asked for our tax return or refund. According to our attorney, this has been the law, but we were never told when filing our b/k that our refund would be required to be turned over, if so, we would have claimed more dependents. We only have a return this year because our business lost money.

  6. #6
    Almosthome Guest

    Default Re: Tax Refund

    Quote Quoting grandmadebb
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    The letter says we are required to fund our confirmed plan with all our disposable income. Since the trustee deems the refund as disposable income and above the net monthly income on our schedules, he says he will distribute the money to our unsecured creditors. He also states, the refund cannot be used against our monthly payment, it is in addition to our monthly payment.

    This is direct from Doug Neway, the new trustee in Jacksonville, FL. Mamie Davis the previous trustee never asked for our tax return or refund. According to our attorney, this has been the law, but we were never told when filing our b/k that our refund would be required to be turned over, if so, we would have claimed more dependents. We only have a return this year because our business lost money.
    Okay I see. And I think the trustee is right (and maybe that is why there's a new trustee) but I would have to research what "disposable income" is under the BK code. Sounds like it was the law but never enforced by the prior trustee - again, I would have to look at the BK code and the cases under it. It may be worth while to do so yourself. There could be a basis to fight it.

    If you look at it from his perspective - that refund is money that was withheld from your paychecks in anticipation of what your tax would be. If you did not get a big refund, you would have received that money every 2 weeks over the year rather than all at once now which would have been disposable income. Had you claimed more allowances on your W-4 (I think that's what you mean), less would have been withheld and that would have been paid to you in your paycheck. Of course, when you get it in a paycheck it spends a lot quicker than if you save it up via a overwithheld tax payment. Oh well. Up your allowances this year.
    Keep in mind the trustee's job is to get as much for the creditors as he reasonably possible can AND he gets commission on what he pays out so you can see where his motivations are.

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