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Ch. 7 Hanging on Spent Refund - Should We Refile?


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This forum was helpful on a previous question we had, and I'm hoping you can do so again.

My wife and I filed our Ch. 7 pro se in June of 2009 (and yes, we're in our fifteenth month!). We did everything right, except for one mistake: we filed our tax returns after our BR filing. We spent it all on necessary bills, catching up on our mortgage, car repairs and such, which I believed we would be allowed to do.

Our trustee has since demanded that we repay that money, which is long gone. With our three kids and a small income of $36,000, our refund was still $7,000 (of which around $5,100 is either the Earned Income Tax Credit or the Additional Child Tax Credit). Our state, unfortunately, doesn't exempt the $3,000 of the ACTC, so $4,900 of our refund was ruled as nonexempt.

We're so far along in our BR, that our judge has already granted us a discharge of our debts. But now, our trustee wants both the $4900 from 2008, as well as our 2009 refund or tax returns (which we've delayed filing with an extension until October). We suggested a repayment plan, but considering her absolute refusal to work with us in any fashion in this case from the very beginning, we expect she'll refuse our plan and move that the judge withdraw our discharge (or vacate the ruling).

My question is this: is our best option at this point to withdraw our BR petition and start over? Or will the judge take a very negative view of doing so at such a late date?

I've tried to find a free or low-cost legal resource in our state (Indiana), but despite the many legal resource centers, none of them seem to have a BR attorney available. I've gone to the local Bar Association's free call line, but again, no one there knew as much about BRs as I did (True story: They suggested I take the bar! Great advice there, gentlemen, but not exactly the advice I was looking for).

Three additional but related questions:

-- If our discharge is vacated, will we be unable to file for BR again for two years from our last filing (thus, June 2011)?

-- If we withdraw our petition, can we refile sooner, say, at the end of 2010 or the beginning of 2011?

-- And, just for the record, since we're expecting a similar refund for both 2009's soon-to-be-filed return, as well as for TY 2010, when exactly IS the best time to file our BR? At the end of the year, or the beginning of the year?

Thanks for all your expert help!

Jefferson's Bible

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Have you talked to the judge? If your BK has already been discharged, then its over and done with. I don't think the trustee can "rethink" her recommendation. She should have asked about your taxes during your 341 meeting. Could be she's looking to up her "fee". Who's she going to distribute the money to?

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Our Bankruptcy hasn't been discharged, only our debts. In order for the full Bankruptcy to be approved, the Trustee has to sign off on it, and she has made it clear she wants the refund, plus 2009, before she'll do that.

<<<Could be she's looking to up her "fee">>>

Absolutely. No doubt about it.

<<<Who's she going to distribute the money to?>>>

She's claimed in court documents that she has over $100,000 in creditors' filings (which I find highly doubtful, since that would be in excess of 90% of our creditors), but she has refused to provide them to us, though as Pro Se filers, we have the right to request them.

Thanks for the input, WillingToCope!

JB

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Our Bankruptcy hasn't been discharged' date=' only our debts. [/quote']I'm not a lawyer, but its my understanding you can't have one without the other. Perhaps what you really mean to say is that your debts have been "stayed" (meaning your creditors can't try to collect from you) pending formal discharge of your BK.

Did the trustee ask about tax refunds in your 341 meeting?

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Perhaps what you really mean to say is that your debts have been "stayed" (meaning your creditors can't try to collect from you) pending formal discharge of your BK.

No. We received a ruling granting us a Discharge of Joint Debtors, which is a granting of a discharge of debts that still needs the approval of the Trustee, which she has refused to give.

Did the trustee ask about tax refunds in your 341 meeting?

Yes. We explained we had spent it, and she still requested it be repaid. We battled in court over whether the Additional Child Tax Credit would also be exempt (which it is in some states), but lost. Note: at first, she denied any portion was exempt, so getting her to relent on the Earned Income Tax Credit, which is most clearly spelled out as exempt in Indiana, was something of a minor milestone.

Jefferson's Bible

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Again, I'm not a lawyer...but...if you have a ruling from a judge granting you a discharge, that's it then I think. At least in Ohio, its the other way around...once the trustee forwards it to the judge, she's approved it. It doesn't go from the trustee to the judge and then back to the trustee.

see if there is a www.naca.net lawyer in your area that will at least advise you...most will give a free consultation.

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Here's a crazy idea, change your withholding so you have more disposable income.

Not so crazy, Dr. Evil, but not so helpful.

As I explained, the majority of our refund comes from two sources: the Earned Income Tax Credit (around $2,100), and the Additional Child Tax Credit ($3,000), which makes up $5,100 of our $7,000 refund. I suppose, we could give up our children... (:^D)

We've already reduced our withholding to zero -- ZERO -- and we're still expecting a massive refund for 2009. Too bad our legal system does not distinguish between a REFUND and a TAX CREDIT.

Thanks for the suggestion, DZ.

Jefferson's Bible

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Again, I'm not a lawyer...

Neither am I, but I play one on TV. (:^D)

but...if you have a ruling from a judge granting you a discharge, that's it then I think. At least in Ohio, its the other way around...once the trustee forwards it to the judge, she's approved it. It doesn't go from the trustee to the judge and then back to the trustee.

Yeah, you'd think that'd be the way things work, but not so. The trustee really has the final say on whether to release the case.

BTW: Three things I've been really surprised about in filing our Chapter 7 pro se:

1) How completely opposed to pro se filers your trustee (and equally, your judge) may be. Our judge has been quite fair, but our trustee? Well, we might as well have been mass murderers, and she the prosecuting attorney.

2) How little oversight can be exercised over the trustees, by anybody. We begged the trustee, we pleaded with the judge, we even approached the DoJ in our state to see if they could nudge her towards some kind of middle ground. No luck in any instance.

3) How much of the significant guidelines used by both trustees and judges exists not on paper, but in a nebulous (and nefarious) gray area of "common understanding" that excludes the average American. As an example, try finding anywhere in print the accepted practice of declaring a debtor's case to be a no-asset case if they hold a less than 2.5% thru 5% assets-to-debt ratio (in essence, $5,000 or less in assets for $100,000 in debts, including your mortgage, of course).

You can't do it. Not officially, of course.

See if there is a naca dot net lawyer in your area that will at lein Indiana and finding no one with any clue what to do.ast advise you.

Thanks for the link, Willing. We'll try them out.

I appreciate the friendly give-and-take. Better than bouncing between seven different Lawyer Referral Service offices in Indiana and finding no one who had a clue what to do.

JB

Edited by Jefferson's Bible
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You might want to find an actual BK attorney to represent you. (Again, most will give you a free consultation).

Already approached over twenty BR lawyers in our area, and many want $75 and up for the first HALF-hour of consultation. Others aren't too far behind.

It seems free consultations are a loss leader, in the expectation of making $750 to $1250 in further fees if you approve of the info in their free hour. Since we've already filed pro se, and gotten 95% of the way through the case, we're not likely to be bringing in too much in any additional fees for them.

Its possible that once they learn your situation, they may not even charge you or give you a reduced rate since you've already done the hard part.

I should add a Point 4 in my "Surprised" list:

4) I'm surprised how many attorneys treat a knowledgeable pro se filer as though we're trespassing on some sort of hallowed grounds. Many have been very friendly, but many more seem to have the opinion of "Well, you got yourself into this mess, you figure a way out

The next attorney who offers us a reduced rate for filling in all the files (in the interactive PDF files, no less), will be the first.

JB

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Guest usctrojanalum
Have you talked to the judge? If your BK has already been discharged, then its over and done with.

No it's not, it can always be re-opened. Especially if assets are discovered which seems to be the case here. Under your logic people can just hide all their assets get a discharge and be then when the assets are found creditors are just SOL because it's over and done with now. That's not the case.

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Well...unfortuneatly...they're right. That's one of the "perks" of going it alone. Sometimes you miss they "gotchas".

Perhaps, but then, that sure seems to give solid evidence to the "two separate but unequal legal systems" argument.

As I see it, you've got your choice. Pay a BK lawyer $1000 to get you out of it, or pay the trustee the $7,000 she wants...with maybe more to come from your other refunds.

Exactly. But my original question is about how to get from here to there.

Do we allow the trustee to simply move to have our case dismissed (with the negatives associated with that)? Or do we withdraw our bankruptcy petition at such a late date?

Both have significant repercussions, not the least of which is the length of time until we can refile.

JB

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Why do you think you cannot refile for a certain period of time? If possible post a statutory reference.

IMO, unless deemed fraudulent you can refile at any time but you have to contend with a shorter automatic stay period...

Let me add that tax returns are always hot topics. It was "accrued" prepetition, but not received until postpetition. So the trustee is correct. It is an asset of the bankruptcy estate. So hypothetically, if you receive a tax return and then spend it to get a car fixed, groceries, shoes and clothing for the kids and then file a bankruptcy, you then just account for where it was spent and move on. There is no asset. In your case, your timing created an asset that is nonexempt must be turned over to the trustee for their cut (25% of the first $5000, 10% thereafter), with the remainder distributed to the creditors.

Edited by jq26
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Why do you think you cannot refile for a certain period of time? If possible post a statutory reference.

I found a reference that mentions a 180-day period prohibiting refiling.

-----11usc0109:

(g) Notwithstanding any other provision of this section, no individual or family farmer may be a debtor under this title who has been a debtor in a case pending under this title at any time in the preceding 180 days if—

(1) the case was dismissed by the court for willful failure of the debtor to abide by orders of the court, or to appear before the court in proper prosecution of the case; or

(2) the debtor requested and obtained the voluntary dismissal of the case following the filing of a request for relief from the automatic stay provided by section 362 of this title.-----

That's if you're case is dismissed. I haven't located the statute covering 2 years, which I may have recalled incorrectly. I'm also unsure if there is the ability to voluntarily withdraw your BR petition anymore, since the 2005 BR law changes.

Let me add that tax returns are always hot topics.

That is certainly the case, and they seem to be handled quite differently in different states, and depending on the trustees involved.

Thanks for the comments, jq26.

JB

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Okay, that's what I thought. This law is really an anti-abuse provision to stop peple from filing and dismissing then refiling to take advantage of the automatic stay. Think about if from a landlord's perspective. Without this provision, a landlord could be stayed from booting out a nonpaying serial filer for a long period of time, to the detriment of the landlord.

So you don't fall in either of the scenarios under (g)(1) or (g)(2) if you bring a motion to dismiss your case. The nonapplicability of (g)(1) is obvious, but with (g)(2), it doesn't apply because no party moved to lift the automatic stay under 362 (again, this has to do primarily with anti-abuse described in the first paragraph). Note that dismissal of the case isn't automatic- the trustee could object. I don't know about any two year rule.

So let's talk about what the trustee wants. Their request is LIMITED to assets of the bankruptcy estate. That would be limited to the accrued amount of tax return attributable to the days prior to filing. So you filed in June 2009- that means that roughly 5/12 of the March 2010 refund (for tax year 2009) is part of the estate. Your 2008 tax year (receivable in March 2009) would NOT be part of the estate if it was spent prior to filing. However, you apparently filed the tax return accrued prior to filing (year 2008) but received AFTER the date of filing in 2009- making it 100% part of the estate (yikes). Bad strategy...but you know that now so no point in dwelling on it, but worth noting for others reading this and considering filing. That was good exemption planning- for your creditors.

I think the trustee is correct here as far as statute. And I don't think this is a small enough sum of money for a trustee not to be concerned about. Keep in mind the trustee is a stand-in for the creditors. Their job is to maximize recovery. So unfortunately for you, you have two options- bring a motion to dismiss the case and try again at a later time or pony it up. I take it you are not willing to hand over your tax return for 2009 and have this be finished, so it sounds like you are going down the road of dismissal.

Edited by jq26
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Thanks for the, um, reality check, JQ. Yeah, we could have planned it differently. :-( I doubt, however, that they'll see this money. Getting that much from us now would mean selling them one of our bedrooms.

One further question: does it matter at all that we actually had room to claim our full 2008 tax refund as exempt, using the Wild Card exemption?

BTW: Called three more lawyers yesterday. One said he'd look into it and call me back, the second said he'd check my case and call me back, and the third suggested I come and we'd talk (at $150 an hour).

You can guess whether the first two have called me back yet.

JB

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But you still didn't file the 2009 return, right? Won't that give you a very large check to settle up with the trustee with?

Yes, if you didn't maximize your wildcard exemption, then it would be "wasted". Bring it up with any attorney you can find. Maybe you can simply amend your schedule C.

http://www.uscourts.gov/uscourts/RulesAndPolicies/rules/BK_Forms_Official_2010/B_006C_0410.pdf

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But you still didn't file the 2009 return, right? Won't that give you a very large check to settle up with the trustee with?

That's correct, except that we really need that 2009 refund to make major repairs (my current auto, at 246,000 mils, is ready to collapse into a pile of debris ala the Blues Mobile). Not to mention a major roof leak, and a basement drainage problem.

Our trustee has said she will keep our case open until we file our 2009, but we would likely file a voluntary dismissal request prior to that.

Maybe you can simply amend your schedule C.

And our Schedule B, line 18 and 21, that mention refunds due or expected.

I'm also investigating a ruling in Missouri's 8th CC in 2006, in re Charles Benn Jr., No. 04-6053EM, that argues that all refunds should be completely untouchable by trustees. I'll report back.

Thanks, JQ.

JB

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