Can I Keep My Tax Refund in My Florida Bankruptcy?
As a Jacksonville bankruptcy attorney, many questions come up about bankruptcy and tax refunds. Many debtors are forced to send copies of their upcoming tax returns if they file their bankruptcy case late in the year before. If the case is a chapter 7 bankruptcy, the debtor should only have to send the following year's return. If the case is a chapter 13 bankruptcy, the debtor will have to send the tax return for every year they are in the bankruptcy. Typically, the entire refund is turned over in the chapter 13 unless the debtor can show a hardship as to why the circumstance is unique and the need for the money is substantial.
This additional "income" is considered just that by the Trustee "additional." This means that the debtors "disposable" income has increased if in fact a refund is received. All disposable income is required to go towards unsecured creditor debt in the chapter 13. Therefore, Trustees are justified in asking the debtors to turn the funds over. Many Trustees require the debtor(s) to send over their tax returns after filing. They further advise the debtors not to spend or use their refund until the Trustee has given them permission to do so.
The refund is considered a "contingent asset" of the bankruptcy estate and if the debtor has exhausted all exemptions in the bankruptcy filing, the entire refund may be subject to turnover. If the debtor(s) fail to comply with these requests, the Trustee could file adversary proceedings against the debtors and even revoke their discharge. If the debtors have exemptions that have not been exhausted during the initial filing, you may be able to use whatever exemptions are left to protect at least a part of the refund. Again, failure to comply with the Trustee's request could result in the Trustee revoking the debtors discharge. When a discharge is revoked, it means the debts that were originally discharged are no longer discharged and the debtor becomes responsible for the debt once again. This means lawsuits, judgments, liens and garnishments are reattached or may continue if the debtor loses the discharge. align="left" style="margin-right: 7px;" />
If you have questions or concerns about taxes and bankruptcy, you should consult with an experienced bankruptcy attorney. Having your entire case/dismissed discharged is not worth one tax refund. You have paid money and spent time and efforts to make sure your bankruptcy goes through smoothly and you get a fresh financial start.
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Greg Gilbert
Keith Maynard
