Will I lose my income tax refund if I file Chapter 7 bankruptcy in Oklahoma?

by Dan Nunley

As April 15 draws closer, I am getting quite a few phone calls and emails from people who are considering filing Chapter 7 bankruptcy but are worried that they may lose their income tax refund if they do.

Most of these people are depending on their income tax refund for necessary living expenses or are planning to use it to catch up on mortgage payments or car payments. Some are even wanting to use their income tax refund to pay their bankruptcy attorney’s fees and filing fees.

The answer to this question depends on the specific facts of your situation and where you file your case. The exemption laws that are available to protect an income tax refund vary dramatically from state to state.

Like everything else in bankruptcy, it is very important that you be completely open and honest with your bankruptcy lawyer about your income tax refund. I ask every client of mine whether or not they have filed their tax return and whether or not they have already received or are expecting an income tax refund.

In Oklahoma, if you file your bankruptcy case AFTER you get your income tax refund, and you spent your refund on exempt property, then your worries are over. It’s not an issue.

It would be all right to spend the tax refund on things such as food, clothing, household goods, home and vehicle repairs, catching up on your house payments, and contributing to retirement accounts.

But you could spend your tax refund in such a way as to create a problem.

For example, if you used the tax refund to repay a relative money you owed them, or to pay off one of your credit cards, that’s considered a “preferential transfer” where one creditor was treated more favorable than the others. And when that happens, the Chapter 7 trustee can force your relative or the credit card company turn over that money.

However, if you file your bankruptcy case BEFORE you get your income tax refund, you must disclose the tax refund in your bankruptcy documents as an asset.

And in Oklahoma, except for any portion of the tax refund that is attributable to the earned income credit, the tax refund is a non-exempt asset which means that it can be taken by the Chapter 7 trustee to be paid to your unsecured creditors.

Whether or not the Chapter 7 trustee will take an income tax refund usually depends on two things: 1) how large the refund is, and 2) what percentage of your unsecured debts would be paid by the refund. If the total amount is small and the percentage paid back would be insignificant, the trustee is likely to abandon the tax refund and allow you to keep it.

If you filed a joint tax return with your spouse, but only one of you filed bankruptcy, your tax refund will be prorated according to the ratios of you and your spouse’s incomes and the trustee would only be able to take the refund belong to the spouse who has filed bankruptcy.

If you file your bankruptcy after January 1, but before you received your refund, the Chapter 7 trustee can take your share of the entire refund.

If you file your bankruptcy petition before January 1, the Chapter 7 trustee may take a pro-rata portion of the refund attributable to the months before you filed your bankruptcy case.

For example, if you file bankruptcy on September 30, nine months of the year (January – September) is considered pre-petition (before the bankruptcy case is filed) and three months of the year (October – December) is considered post-petition (after the bankruptcy case is filed). In this example, the Trustee can take 75% of your refund, while you get to keep the other 25%.

Lastly, future tax refunds beyond the year in which you file your bankruptcy petition are not subject to being taken by the Chapter 7 trustee.

If you are considering filing bankruptcy but are worried about losing your income tax refund, contact me today to schedule a FREE initial consultation. Just fill out the Contact Dan form on the far right side of the page and click the Submit button and I’ll get back with you as quickly as I can. Or just pick up the phone and give me a call at 918-615-8260. I’ll answer all of your questions in plain English so that you’ll have the information you need to make the decisions that will help you the most.

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yourn ngov January 30, 2010 at 6:19 pm

I filed bankruptcy Dec. 22, my discharge is March 28, and I am getting a $3900 income tax refund. Will the trustee take my refund? Please let me know, I need this money to catch up on my bills. Thank you.

Dan Nunley January 31, 2010 at 9:04 am

Whether or not a Chapter 7 trustee will take a debtor’s income tax refund depends upon many things which vary from state to state. Since I practice bankruptcy law in Oklahoma and you live in another state, I suggest that you contact a knowledgeable bankruptcy lawyer near you for advice.

Here are some things for you to be aware of:

First, did you disclose the refund as an asset in your bankruptcy? You should have. If not, you will want to amend your bankruptcy schedules.

Second, depending on whether you used state or federal exemptions, you may have been able to protect a part or even all of the $3,900 by claiming it as an exempt asset. Did you do that? If not, you may want to amend your bankruptcy schedules.

Third, if you have a sizeable refund that you are unable to exempt or protect, then it is very likely that the Chapter 7 trustee will take your refund.

I wish you well.

Dan Nunley

Nobleonian February 3, 2010 at 9:37 am

I am not getting a straight answer from my attorney on this. I filed Chapter 7 on 3/9/09, and it was discharged on 7/7/09. My attorney sent me an email on that date saying the trustee would probably wait until tax returns were filed before final dismissal.

In 2008 tax year, I went through a divorce and custody battle. I had to file single for 2008, since I didn’t get my son until October. Therefore I owed $1300 Federal and $300 state for 2008. Those are the tax documents I presented to the attorney and the trustee.

For tax year 2009, I was able to file head of household, and I am receiving a tax refund of $2905 federal and $112 state. I reported that I am due refunds to my attorney, and he told me to wait until after I receive the refunds to contact him. He would then contact the trustee to determine what needs to happen.

Is the trustee entitled to take my 2009 refunds? If so, will it be a pro-rated amount? How likely is he to simply let me keep my refund? I need the money.

This was a filing in OKC district.

Sorry for the long email. Any answer you could give is great.

Dan Nunley February 3, 2010 at 4:00 pm

The trustee is only able to take a prorated portion of your refund – specifically 9/52 of your refund or that part attributed to your income earned from January 1, 2009 to March 8, 2009. Depending on the amount of that prorated portion and how much of a payback that would make on your unsecured creditors’ claims, the trustee could very well abandon his interest in the tax refund and allow you to keep it all.

Dan Nunley

Robert Runyon February 3, 2010 at 8:46 pm

I filed Chapter 7 bankruptcy in Aug. 2009 and received my discharge on Nov. 17th. My tax refund was put on hold according to the IRS and they stated that there was an attempt to reverse the hold but I have to wait the standard 3 weeks time period to get my refund. Now my attorney said the bankruptcy will have nothing to do with this year’s tax return because I have already been discharged. Is this true and/or how much can the trustee take of my tax return if any now since I was already discharged of the debts, which were only credit card accounts.

Thank you for whatever advice you give…

A little nervous about this
Bob Runyon

michelle casey February 4, 2010 at 8:48 am

If I file Chapter 7 bankruptcy, do I have to give up my tax refund every year?

Dan Nunley February 4, 2010 at 9:26 am

Michelle,

No. The Chapter 7 trustee has no ability to take an income tax refund for a tax year subsequent to the year in which you filed your bankruptcy. So if you file bankruptcy in 2010, any tax refunds you are owed for the tax years 2011 and forward would not be an issue.

Let’s say that you file bankruptcy next month on March 1, 2010. If you were owed and received your 2009 income tax refund before you filed bankruptcy, then the refund is yours to keep and the trustee can’t touch it. However, if you haven’t received your refund before you file your bankruptcy, then the trustee would be able to take all of your refund except any portion due to the earned income credit. Whether the trustee takes the refund depends upon how much the refund is and how much of a percentage of your unsecured claims it would pay back.

Also if you file on March 1, 2010, then the trustee would have a claim on 1/6 of any income tax refund you may receive next year for your 2010 income taxes. However, most trustees abandon their interest in a possible tax refund that far away as they have no interest in keeping a bankruptcy case open that long.

Dan Nunley

George Watson February 4, 2010 at 9:36 am

I live in Shawnee, OK, and am going to file bankruptcy on my home. However, I have about $8000.00 in damage to the home because of the recent ice storm. Do I have to file a claim or can I just include it in the bankruptcy?

Dan Nunley February 4, 2010 at 9:52 am

Robert,

Since I am licensed to practice law only in Oklahoma and you appear to live in Michigan, I cannot give you legal advice. If you’re not comfortable with the advice your current attorney has given you, I suggest that you use the Attorney Finder provided by the National Association of Consumer Bankruptcy Attorneys to locate a knowledgeable Michigan bankruptcy lawyer from whom you could seek a second opinion. I wish you well.

Dan Nunley

Dan Nunley February 4, 2010 at 10:05 am

George,

My advice would be to go ahead and file the claim with the insurance company since at this point you are still the homeowner and it would be wise for you to avoid any appearance of bad faith or failure to mitigate damages. You don’t want to give the mortgage company any basis to file an objection or otherwise cause you problems in your bankruptcy. Then when you file bankruptcy, make sure to list the pending insurance claim in the appropriate section of the Statement of Financial Affairs.

Dan Nunley

Erika February 5, 2010 at 11:31 am

Hi ~ I live in FL. I have retained services and am almost done paying my attorney. Once paid in full he will file my Chapter 7. In the meantime, I believe I will be receiving a tax refund around $2500.00 Would it be beneficial for me to wait until after I file the Chapter 7 to file my return? I’m a single parent and going to lose the house in the bankruptcy. No savings. The return would certainly help get us back on our feet.

Dan Nunley February 5, 2010 at 11:43 am

Erika,

In my legal opinion, it is almost always in a person’s best interest to file his/her tax return and receive any tax refund BEFORE filing bankruptcy.

As I am licensed to practice law only in Oklahoma and you live in Florida, I cannot give you legal advice. Therefore, since you have already retained a bankruptcy attorney, I would suggest that you seek his advice. I wish you well.

Dan Nunley

Stephanie February 5, 2010 at 1:19 pm

My husband and I filed bankruptcy in June 2009 and it was discharged in September 2009. Neither the trustee nor my attorney mentioned anything about our taxes for 2009, they reviewed 2008 taxes and determined that I would not have to re-pay any of the refund I had already spent. I have already filed my taxes for the 2009 season, and it seems there is a hold-up at getting my refund. Could this be due to the bankruptcy or just maybe a fluke at the IRS?

Dawn February 5, 2010 at 10:25 pm

Me and my husband filed chapter 7 bankruptcy and it was final in Oct 09. I keep hearing different things. We live in Indiana. I was wondering if we would get a tax refund?

Dan Nunley February 6, 2010 at 10:58 am

Stephanie,

As I am licensed to practice law only in Oklahoma and it appears that you live in Ohio, I cannot give you legal advice. I would recommend that you talk with the attorney who represented you in your bankruptcy.

However, I will say that if you had filed your case here in Oklahoma, and a Final Decree was issued and your case was administratively closed, the Chapter 7 trustee would not now be able to take any of your 2009 income tax refund.

Depending on the exemptions available to you, the trustee may have been able to make a claim against the portion of your tax refund attributable to your income from January 1, 2009 to the date you filed your bankruptcy. But if the trustee did not hold your case open, and did not ask for a copy of your 2009 income tax return in order to pursue the matter, then in my opinion you have nothing to worry about.

Dan Nunley

Dan Nunley February 6, 2010 at 11:05 am

Dawn,

As I am licensed to practice law only in Oklahoma and you live in Indiana, I cannot give you legal advice.

However, I’ll repeat to you what I told Stephanie recently regarding her question which was very similar to yours.

If you had filed your case here in Oklahoma, and a Final Decree was issued and your case was administratively closed, the Chapter 7 trustee would not now be able to take any of your 2009 income tax refund.

Depending on the exemptions available to you, the trustee may have been able to make a claim against the portion of your tax refund attributable to your income from January 1, 2009 to the date you filed your bankruptcy. But if the trustee did not hold your case open, and did not ask for a copy of your 2009 income tax return in order to pursue the matter, then in my opinion your bankruptcy filing will not pose a problem to you receiving your 2009 income tax refund.

Dan Nunley

brenda February 10, 2010 at 12:55 pm

Hi. I live in Missouri and filed a Chapter 7 bankruptcy in June 2009. I recently received my discharge order but I am concerned about my income tax return being taken by the trustee. The trustee said in the meeting that he wasn’t going to take our tax refund. Should I go ahead and file my income tax return and hold on to the money for a while in case they ask for it later? If so, how long should I hold on to it?

Dan Nunley February 11, 2010 at 11:03 pm

Brenda,

I am licensed to practice law only in Oklahoma and since you live in Missouri, I am prohibited from giving you legal advice. I would suggest that you contact a knowledgeable bankruptcy attorney near you for advice.

I will tell you that I advise my clients that simply receiving a discharge does not preclude a Chapter 7 trustee from administering non-exempt assets such as income tax refunds. However, if the trustee files a report of no assets, then the non-exempt asset has been abandoned by the trustee to the debtor.

Dan Nunley

Shelly February 12, 2010 at 4:27 pm

Hi, I live in Oklahoma City and was discharged from Chap 7 Nov 2009. I recently filed my 2009 taxes and was expecting to receive a refund soon. I called the IRS and they informed me that my refund was sent to my Trustee. I then contacted the Trustee and was informed that my refund would be released to me but will go back to the IRS and then they would re-process? How long does this process take and why can’t the Trustee just give me my refund?

Dan Nunley February 13, 2010 at 8:39 pm

Shelly,

Those are good questions. Unfortunately I don’t have answers for you as I haven’t experienced this issue with any of my clients.

Dan Nunley

Justin February 20, 2010 at 12:09 am

Hello,

I live in New York so I know you cannot give me direct legal advice but I was wondering how it would work if you could provide any insight in Oklahoma. I have received my Federal tax refund ($1500) and spend a portion on small things such as gas and food ($500). Some of this was out of state as I went on a trip that was a Christmas present from my girlfriend and her family. I only spent on gas and food, not the actual hotel or trip itself. I have about $1000 remaining and have just found an engagement ring I would like to buy at a closeout price of around $300. Will this cause problems in the filing if I have used this money and for a semi-large purchase of $300 for an engagement ring. Does the engagement ring exemption cover the ring if I have not purposed as of yet? Thanks.

Dan Nunley February 20, 2010 at 11:32 am

Justin,

You’re right in that I cannot give you legal advice since I am licensed to practice law only in Oklahoma and you are a resident of New York. I would suggest that you contact a knowledgeable bankruptcy attorney near you. A good way to find one is to use the Attorney Finder provided by the National Association of Consumer Bankruptcy Attorneys. I wish you well.

Dan Nunley

Michelle February 28, 2010 at 9:44 pm

I have already received my tax refund of $4100 in mid-February and have already spent about $1000 on bills, household items, toys and educational items for my special needs daughter. I can prove the portion that was spent on bills with my bank account statement, however I always take my receipts to my work and have them professionally shredded. Therefore I don’t have proof of everything that wasn’t spent on bills. My question is whether or not I will be obligated to give up the remaining $3000 dollars in my bank account from my tax refund or will I be able to keep it. I intend on filing for chapter 7 within the next month and will still need some “fall back money” for unexpected car repairs, lost wages from sick days, educational toys and items fro my daughter, and medical visits as I don’t have any health insurance. Am I allowed to close the account prior to filing? Can 25% of my income still be garnished through bankruptcy? I receive food stamps, medicaid (for my daughter) and daycare assistance and take home only about $1300 a month. Could I be exempt from having any of my money taken? Are there exceptions from my money being take if I am a single mom of a special needs child? She is 3 and and has PDD (an autistic spectrum disorder) ADHD, sensory processing disorder, fine motor disorder, speech delay and feeding disorder.

Dan Nunley March 5, 2010 at 10:20 am

Michelle,

As I am licensed to practice law only in Oklahoma and you appear to live in Colorado, I cannot give you legal advice. I would suggest that you contact a knowledgeable bankruptcy attorney near you for legal advice. You may want to use the Attorney Finder provided by the National Association of Consumer Bankruptcy Attorneys. I wish you well.

Dan Nunley

John April 8, 2010 at 7:22 pm

I would appreciate your comment on this issue. I filed for chapter 7 on Feb 6, 2009 and was discharged in May of 2009. I paid over 12k in a tax refund for 2008 to my trustee. The amount of the refund was related to considerable real estate investment losses (which ultimately lead me down the path of chapter 7) rather than “over payment” from income. Now I’m looking at another pretty big refund as a result of losses from previous years (limits prevented from those losses being filed during the year of the actual loss). My questions are 1) was the trustee entitled to ALL of my 2008 refund or just the portion of my refund that was the result of over payment related to income and 2) because the amount of my 2009 refund is related to losses from previous years, is the trustee entitled to more than the prorated amount of my 2009 return??

Thank you very much!

Danielle April 11, 2010 at 10:28 pm

Hi! I filed in Canadian County, OK and I filed Chapter 7 in April 2009 and received my discharge in July of 2009. I lost my home, second mortgage and TONS of credit cards – over $100,000 in debt. I just filed my taxes for 2009 and it appears that I should be receiving $2600.00 back on my taxes this year. I’ve never filed before – and my lawyer from when I filed has since retired. If I get my refund, what should I do? The IRS is telling me there is no current hold on my refund. The banks have not completely taken the house back, but have started the foreclosure process. Who should I contact if the trustee doesn’t get my tax refund first? Is it possible I won’t have to give my tax refund up? Thank you!

Dan Nunley April 13, 2010 at 8:31 am

John,

Thank you for your questions. Unfortunately, as I am licensed to practice law only in Oklahoma, and you appear to live in Floriday, I cannot give you legal advice. I would suggest that you contact the attorney who represented you in your bankruptcy or if you represented yourself, seek an answer from a knowledgeable bankruptcy attorney near you. I wish you well.

Dan Nunley

Dan Nunley April 13, 2010 at 8:37 am

Danielle,

If your Chapter 7 trustee filed a Report of No Assets and your case has been administratively closed then it is too late for the trustee to seek the turnover of your 2009 income tax refund. The trustee would have only been entitled to that portion of your refund attributable to the income you earned from January 1, 2009 to the date you filed your bankruptcy in April, 2009 less any amount attributable to the earned income credit.

Dan Nunley

Amy April 21, 2010 at 1:57 pm

We filed bankruptcy in July 2009, did not reaffirm our mortgage, and received our discharge in Nov. 2009. My question is if I now attempt to apply for home modification through the bank before the final foreclosure, will I have any tax liability if the modification fails? Or should I just let it foreclose since we have already surrendered the home via Chapter 7 to avoid paying any taxes? Thank you very much!!

Stephanie April 22, 2010 at 7:26 pm

My husband and I filed chapter 7 bankruptcy and I was told by my attorney that I would not have to worry about the trustee taking our tax refund because we did not exceed the amount in assets that is allowed but now I just got a letter in the mail from the trustee saying that she needs a copy of my 2009 tax return and that 87.94% of the refund, less earned income credit, if any, is property of the estate and must be turned over upon receipt. I’m confused and don’t know what that means. Can you please explain to me? Me and my husband were not able to receive the earned income credit because he made over the certain amount allowed but we did get a refund back months ago and have already spent it. Please explain this to me if you can!!

Dan Nunley April 22, 2010 at 9:54 pm

Stephanie,

Since I am licensed to practice law only in Oklahoma and you apparently live in Florida, I am prohibited from giving you legal advice. However, I will say this. When a person files bankruptcy, if there aren’t exemptions available to exempt or protect an income tax refund, then the portion of the refund that is attributable to the time from January 1 until the date the bankruptcy was filed is property of the bankruptcy estate and can be administered by the trustee. The bankruptcy debtor is entitled to keep that portion of the refund attributable to the time from the date the bankruptcy case was filed through December 31. From what you have said, it appears that you filed your Chapter 7 bankruptcy petition on or about November 17, 2009 because January 1, 2009 to November 16, 2009 equals 320 days which is basically 87.94% of the calendar days in 2009.

For specific legal advice regarding your situation and your options, I would suggest that you contact your bankruptcy attorney or another bankruptcy attorney near you in Florida.

Dan Nunley

Dan Nunley April 22, 2010 at 10:00 pm

Amy,

As I am licensed to practice law only in Oklahoma and you appear to live in Nevada, I cannot give you legal advice. I would suggest that you contact a knowledgeable bankruptcy attorney near you. I wish you well.

Dan Nunley

Kay January 16, 2011 at 8:43 am

I filed bankruptcy in August of 2010, and it was discharged Nov of 2010. I’m getting back $1976 from federal, $1500 of that is my child tax credit. Can the trustee take that money? I need my refund.

Dan Nunley January 18, 2011 at 8:03 am

Kay,

My research reveals no Oklahoma bankruptcy court decisions on the issue of whether the federal child tax credit is property of the bankruptcy estate and if so whether it is exempt property. Oklahoma exemption statutes exempt the part of a debtor’s tax refund attributable to the earned income credit but those statutes do not mention the child tax credit.

I limit my bankruptcy practice to the Northern and Eastern bankruptcy districts in Oklahoma and based on your email address, i assume that you live in Oklahoma City and filed your bankruptcy there which is in the Western bankruptcy district. Since local rules and procedure differ from district to district, I would suggest that you contact an experienced bankruptcy attorney in the Oklahoma City area for advice.

Even if the trustee could take the portion of your refund attributable to the child tax credit, that may not be likely to occur. When you met with the trustee, did he/she ask about your 2010 tax refund? Did the trustee request you to provide him/her with a copy of your 2010 income tax return when filed? If the trustee didn’t inquire into your 2010 tax refund, then most likely the refund won’t be an issue. Look to see if the trustee filed a Report of No Distribution. If so, the trustee does not intend to take any property from you.

Furthermore, based on the date you filed your case and the fact that you have already received your discharge, I would ask you if the bankruptcy court has issued a final decree in your case and if your case has been closed by the bankruptcy court clerk. If your case is closed, it is a done deal. No property will be taken from you after your case is closed.

Dan Nunley

Krystal January 21, 2011 at 1:19 pm

I live in Shawnee, OK. I filed Chapter 7 bankruptcy in July 2010 and was discharged in October 2010. My bankruptcy was rather small and most was unsecured loans from Instant Cash loan companies. I expect to receive about $3000 income tax refund. How much of this will the Trustee keep and how long does it usually take to find out from the trustee that I can cash the check.

Elaine January 25, 2011 at 9:26 am

I filed Chapter 13 bankruptcy in August 2006 in Oklahoma City. My home is turning into a money pit requiring what seems like constant repairs and I am struggling to keep up with it all although my mortgage is current. Can I amend to now give up my home through the bankruptcy court or do I have to sell it through the normal channels?

Tommy Goodman January 31, 2011 at 10:33 pm

We filed Chapter 7 bankruptcy in Nov. 2010 and we recently received a letter from the trustee asking for copies of our W-2s and income tax returns. The letter said that the trustee could take a portion of our tax refund. We had a second baby in 2010 and we made a lot less money, so we have 2 children to claim this year and the earned income tax credit, I think we should get back around $5000.00. How much of this refund can they take? Thank you.

Nate February 7, 2011 at 10:21 am

If I filed Chapter 7 bankruptcy on Jan. 2, 2011 in Oklahoma, should I file my income tax returns before or after my meeting with the bankruptcy trustee. How much of my tax refund can be taken away by the trustee either way? Does it make a difference that I’m married but my wife didn’t file bankruptcy with me?

Dan Nunley February 7, 2011 at 11:05 am

Nate,

At this point, it doesn’t matter if you file your 2010 income tax returns before or after you meet the bankruptcy trustee. Either way, you need to be prepared to lose any income tax refund you may have coming. If you didn’t file your tax returns, receive and spend your refund BEFORE you filed your bankruptcy case, then the only part of your refund that can be protected under Oklahoma exemption laws is the part of your refund attributable to the earned income credit. Anything else the trustee can take. However, in the past, trustees generally haven’t taken an income tax refund unless it exceeds $1,000.00. And sometimes a trustee will use a higher limit of $1,250.00 or even $1,500.00. Also since your wife didn’t file bankruptcy with you, the trustee will be able to take only that percentage of your refund that corresponds to your percentage of your household’s income as reported on your tax return.

Dan Nunley

Dan Nunley February 7, 2011 at 11:15 am

Tommy,

First, the trustee cannot take the portion of your income tax refund that is attributable to the earned income credit. Second, the trustee is not entitled to any portion of your refund attributable to income earned after you filed your bankruptcy case. For example, if you filed your case on November 30, 2010, then normally what would happen is the trustee would take 11/12 of your refund with you keeping 1/12. And usually, the trustee won’t take anything unless what he or she could take exceeds $1,000.00. Sometimes trustees use a higher figure of $1,250.00 or even $1,500.00.

Dan Nunley

Dan Nunley February 7, 2011 at 11:36 am

Krystal,

First, did your trustee say anything about your income tax refund at the meeting of creditors? Have you received a letter from the trustee regarding your income tax refund? If not, I would suggest that you check to see if the trustee file a Report of No Distribution with the bankruptcy court after your meeting of creditors which would indicate that the trustee had no intent of administering any non-exempt assets such as a tax refund. Also check to see if a Final Decree has been issued and your case closed by the bankruptcy court clerk. If so, your case is finished and your income tax refund is yours to keep. If you case is still open because the trustee has an interest in your income tax refund, then you probably should contact the trustee for instructions.

Dan Nunley

Dan Nunley February 7, 2011 at 11:41 am

Elaine,

Oklahoma is divided into three bankruptcy districts – Eastern, Northern and Western. You filed your case in the Western District and I limit my practice to the Eastern and Northern Districts. Local rules and procedure vary dramatically from district to district and since I don’t practice in the Western District, I not familiar with it’s rules and procedures. Therefore, I would suggest that you contact an experienced Chapter 13 attorney who practices in the Western District or contact the office of the Chapter 13 Trustee for the Western District. I wish you well.

Dan Nunley

Jennifer February 9, 2011 at 4:29 pm

My husband and I are contemplating filing Chapter 7 bankruptcy. My husband receives Social Security Disability and I am self-employed making about $13,000/yr. We have three kids. The tax refund we received was all due to the earned income credit and the child tax credit. Can we keep this? We just opened a savings account with some of this money.

Dan Nunley February 9, 2011 at 6:00 pm

Jennifer,

If a person filing Chapter 7 bankruptcy receives his or her income tax refund and spends it on reasonable and necessary expenses prior to filing bankruptcy, the refund is not an asset of the bankruptcy estate and doesn’t come into play.

However, if a person filed Chapter 7 bankruptcy before he or she received his income tax refund, that’s an entirely different matter. In that situation, any portion of the refund attributable to the earned income credit is exempt property which means it is protected and off-limits from the bankruptcy trustee. However, the same cannot be said for any portion of the refund due to the child tax credit. A Chapter 7 bankruptcy trustee would be entitled to demand turn over of that portion of the refund attributable to the child tax credit. However, my experience has been that most trustees won’t take any of the refund unless the part he or she could take would amount to at least $1,000.00 and sometimes more. That’s not a guarantee, just my experience.

Dan Nunley

Ore February 24, 2011 at 4:35 pm

My wife and I filled Chapter 7 in November of 2010. We filed our tax returns a couple weeks ago and got refunds of $2,200 from federal and $300 from state. Is this an amount that would be seized by the bankruptcy courts and also do the child exemptions come into play at all? We have two kids so that was $2000 that was deducted from our gross income. I thought I heard somewhere that they could take everything but your child tax credit. Thanks for the input.

Dan Nunley February 24, 2011 at 8:47 pm

Ore,

Because you filed your bankruptcy prior to receiving and spending your income tax refund, the trustee has the right to demand that you turn over the refund. The only part of the refund that Oklahoma law allows you to protect is any part of the refund attributable to the earned income credit not the child tax credit. Whether or not the trustee would seek turn over of your refunds depends on the amount not attributable to the earned income credit. My experience has been that most trustees won’t take any of the refund unless the part he or she could take would amount to at least $1,000.00 and sometimes more.

But before you get too worried, think back to your meeting with the trustee. Did your trustee say anything about your income tax refund? Have you received a letter from the trustee regarding your income tax refund? If not, I would suggest that you check to see if the trustee file a Report of No Distribution with the bankruptcy court which would indicate that the trustee had no intent of administering any non-exempt assets such as a tax refund. Also check to see if a Final Decree has been issued and your case closed by the bankruptcy court clerk. If so, your case is finished and your income tax refund is yours to keep. However, if you case is still open because the trustee has an interest in your income tax refund, then you should contact the trustee for instructions.

Dan Nunley

James McCann February 25, 2011 at 4:58 pm

I filed bankruptcy in 2009 and filed my income tax before if filed bankruptcy and made a list and kept receipt to show the trustee where the money went. The bankruptcy went though so can the trustee come back and take my 2010 income tax refund? I live in Kansas.

Jennifer February 28, 2011 at 10:16 am

I filled my chapter 7 on December 23, 2010. When I walked in to see the trustee my lawyer says she may want to take your tax refund. I never heard anything before that day in court. We get almost 10,000.00 back. We have 3 kids. I don’t work and my husband works April to November. So we live on our tax refund during the winter months. So now I’m waiting to hear back from the trustee to see if she will take it. I have all this money in my bank and I can’t spend it. My mortgage and other household bills are behind. What can I do so I can keep my money???? I live in NY.

Amber March 3, 2011 at 5:45 pm

My husband and I filed Chapter 7 on 03/31/2010 and it was discharged on 07/02/2010. We recieved a letter from the Trustee in mid-January regarding our tax refund. We are getting $2200 back from Federal, but owe State $958. We were wondering how long does it usually take for the Trustee to make his decision on whether or not to take it and do you think he would keep our Federal refund even though we owe State? Our attorney sent our tax info to the Trustee about 2 weeks ago. Our attorney has not returned our calls regarding these questions…so your help would be appreciated!

Amber

Dan Nunley March 5, 2011 at 9:37 am

Jennifer,

Your bankruptcy attorney should have questioned and counseled you and your husband regarding the effect filing Chapter 7 bankruptcy could have on your income tax refund. I advise my clients that if they file bankruptcy before they receive and spend their income tax refund, the bankruptcy trustee will likely take their income tax refund. Sometimes a client of mine needs to file bankruptcy right away and is willing to risk losing a tax refund but that is the client’s decision to make. If your attorney didn’t advise you about the possibility of losing your income tax refund in bankruptcy, then in my opinion your bankruptcy attorney committed malpractice.

Dan Nunley

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