Do I get to keep my tax refund in a Florida Bankruptcy?
Many times debtors are concerned, sometimes overly concerned, that if they file bankruptcy, the bankruptcy Trustee will make them turnover some or all of their refund. As a Jacksonville bankruptcy attorney, this can be a very tricky answer. It depends. It depends on a whole host of factors. What chapter did the debtor file? When was the bankruptcy filed? Was the refund already dispersed and used? Do you have an extraordinary financial circumstance that requires the refund proceeds? Lets take it one step at a time.
First, what chapter did the debtor file? If the debtor filed for chapter 7bankruptcy relief, when was the case filed? The later in the year the case was filed, the more likely the debtor will be forced to turnover more of the following year's return. Was any of the refund Earned Income Credit? If so, that entire amount is off limits to the bankruptcy trustee. The Trustee divides however many days into the year the debtor was when he or she filed by 365 to determine the percentage owed or available to the Trustee for turnover. If the debtor fails to cooperate by providing a copy of the return to the Trustee, the Trustee can have the discharge revoked for noncompliance. Another way to protect the tax refund is if the debtor has any more exemptions available that were not exhausted in the bankruptcy for personal property. If so, the debtor may be able to protect some or all of the refund the Trustee believed he or she was entitled to. If the debtor filed a chapter 13, each year he or she is in the bankruptcy, the debtor must turn over tax returns including any refund owed unless the debtor gets permission from the bankruptcy trustee to keep the refund for an extraordinary expense. The reason the refund must be turned over is because it is considered disposable (additional) income and all disposable income is expected to go towards unsecured creditor debt.
What if the debtor already spent the refund? Then it depends on the length of time between receiving the refund and the filing of the bankruptcy. Typically, the Trustee does not have recourse for recouping these spent refunds. If they tried to pursue these funds, they would spend more money trying to recoup instead of just letting it be or they would revoke many, many discharges because the debtor is not able to payback the debt in a timely manner.
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Greg Gilbert
Keith Maynard
