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girlwonder

Ch. 7 341 Meeting Trustee ordered to take future Income tax return!!

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I live in Indiana and I had my 341 meeting today. I have a question concerning the trustee's order to take my income tax return next february. He ordered me to file no later than mid-february and to bring it to the attorney so she can take it to him to the estate If I do not do so he will revoke my discharge. Can he do this? His rationale was due to the fact that I received a large refund last year. He asked if I expected one that large this year I said no because I surrender everything including my house, my car, so I would not get any deductions. I need help as I didn't think he could do this. I did find in IRS Publication 908

Court Jurisdiction Over Tax Matters

Bankruptcy Court

Determination of tax liability. Generally, the bankruptcy court has the authority to determine the amount or legality of any tax imposed on a debtor under its jurisdiction and the bankruptcy estate, including any fine, penalty, or addition to tax, whether or not the tax was previously assessed or paid.

The bankruptcy court does not have authority:

To determine the amount or legality of a tax, fine, penalty, or addition to tax that was contested before and adjudicated by a court or administrative tribunal of competent jurisdiction before the date of the bankruptcy petition filing, or

To decide the right of a tax refund for the bankruptcy estate before the earlier of:

A determination for refund by the IRS or other governmental unit, or

120 days since the trustee properly requested the refund.

I also found information on filing a short tax year- filing from the beginning of the year through the day before bankruptcy and then another filing from day filing bankruptcy through end of year.

Any help would be appreciated.

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The Trustee can't order you to do anything. That is up to the bk judge. The Trustee can strongly urge you to do something by a date certain. If you don't he/she can seek an Order to compel your cooperation and, if you then refuse, seek to revoke the discharge. But, you are making a mountain out of a molehill.

While your are not legally required to file your 2014 tax returns until April 15, 2015 (October 15, 2015 if you file for an extension), you should do them sooner rather than later. The earliest one could file I would assume is in February, 2015. Why not do as the Trustee has requested? The quicker you send him a copy the quicker he can close your case if you are not getting any refunds.

Des.

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Thanks. Let me clarify. He is ordering me to file and to hand over any and all Income Refund money I will receive to him directly or he will revoke my discharge. I got a refund of $5,000 last year. He is assuming I will get that much back this year. It is not the case, but I will most likely get a refund. He is going to put the refund in the estate. He made a huge deal over it yesterday...Sorry if I sounded out of line. I haven't claimed any state exemptions as I surrendered anything. I have never claimed bankruptcy before and I am seeking knowledge.

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Unless you can find an exemption that covers the tax refund (you don't mention what state you are in)), your Trustee is absolutely entitled to all or a portion of the 2014 tax refunds (if any). He is asking you to file your taxes sooner rather than later for three reasons:

1. He wants to see if you are getting a refund;

2. If no refund and assuming no other non-exempt assets he can or wishes to take, he can complete his job sooner rather than later by issuing his Report of No Distribution; and

3. If there is a refund, he can decide sooner rather than later, if the amount is large enough to administer and if it is, begin the process of notifying creditors to file claims.

If the refund is not exempt, you cannot keep it unless the Trustee says so. Again, this is not a big deal. The Trustee has a job to do. Some have better bedside manners than others, but in the end, it is all the same. Get the taxes done as quickly as possible and, if there is a refund that you cannot exempt, make sure you turn it over to the Trustee when you receive it.

You mentioned you have not claimed any exemptions. I gather you did not hire an attorney and, as a result, have incorrectly completed your bankruptcy schedules. You now need to hire an attorney and correct your mistakes. You are entitled to certain exemptions and by your failure to take them you theoretically lose EVERYTHING, including the clothes off your back. Schedule C needs to be PROPERLY amended! Call an attny first thing Monday morning.

Des.

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Yeah, this is a problem I did not have to deal with because I owed taxes at the end of the year due to being a freelance.

The question is how much do you want to fight and is it worth it. I will say this, for any refund less than $1000, just follow the trustee and let them have it. Also, if you get the EIC, it will be harder to fight than simply giving the trustee what they want.

If you decide this is worth fighting, there are a couple of options:

1) Simply not file your taxes and let the trustee file for the hearing and then argue that the trustee has no right to change IRS regulations and override congress and that you will make sure the trustee has the refund check by 1 May. If you do not have an attorney and decide to follow this path, get one because they will have to look up relevant case law.

2) You can do up a faux tax return right now using the current rates for everything to the end of the year and find out if you are going to receive a refund and how much. Again, if it is a low amount, you might want to say screw it. If the amount is large enough (or if you already paid your tax liability for this year or are close), you can change your W4 and increase the exemptions to stop withholding for the time being. If you do this, change it back in early December so that your W2 does not reflect what you did on exemptions (and to possibly cover any additional tax). You will then not get a refund and instead be able to pocket your cash. There is tons of case law that says you only have to pay the IRS what you owe them in the year and you can set up your affairs to do it however you with throughout the year. The IRS cannot demand that you pay more during the year.

3) If the case is still open, see if you can exempt the refund under the allowed personal exemptions for your state. If you can, you will have to redo the form to do it but that would probably be the best route. Overestimate your refund so that you are sure to fall within the guidelines.

As for why the trustee is doing this, there is a look forward of about 6 months after the discharge where the trustee can take any windfalls as part of the estate, including tax refunds. It might be that the 6 month period ends in February or March (and technically you are entitled to the windfall once tax season opens so he can take it).

In any case, what the trustee is looking at is the fact that they can collect any windfall

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Des- I live in Indiana. I had an attorney who represented me. Afterwards she explained the trustee has always taken future refunds when the a filer had a refund of $1000 or more. She advised me to do a workup of what my taxes will be for this year as I don't have a house to claim or any of the deductions that go with it and she will present it to the Trustee. It's not a big deal I use that money to pay my son's college tuition. I don't want my son to come out of college in debt like I was.

Whocares1000- Thanks for the information I will research the options this weekend. I see Indiana has a Wildcard Exemption of $9350.

Thanks everyone for their assistance.

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The following case, while a bit convoluted, will explain to you that you will be required to turnover the refunds. It appears that the only thing you can protect is any portion of the refund that is attributable to an Earned Income Credit but you need to check with your attorney.

In re Marvel, 372 B.R. 425 (Bankr.N.D.Ind., 2007)

Assuming the link works, you can read the case at:

https://www.courtlistener.com/innb/aqFm/in-re-marvel/

Des.

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