Bankruptcy

Bankruptcy filing catches refund on unfiled tax return

By Cathy Moran, California Bankruptcy Lawyer

The bankruptcy estate consists of not only assets in the possession of the debtor but also their rights to stuff they don’t yet have. So if you will be entitled to a refund for 2009’s taxes and you file before you receive the refund, that right to payment is part of the bankruptcy estate.

My clients often seem to think that  they don’t have to disclose the refund if the return hasn’t been filed,  or even if it has been calculated in a filed return but not received.

What if you haven’t prepared the return and know if you’ll get a refund?  Schedule it as “possible tax refund”, or amend the schedules to disclose it as soon as you know.

You may be able to exempt the refund under the exemptions scheme available in your filing and keep it for yourself, but the right to the refund must be disclosed.

Other kinds of rights that often get omitted from the bankruptcy schedules are rights to insurance proceeds;  inheritances;  accounts receivable;  and legal claims, whether or not the case has been filed. Leave this sort of asset off the schedules and you may lose the asset to the trustee or lose the right to claim an exemption you would have been entitled to if you disclosed the asset in the first place.

Full post as published by Bankruptcy Law Network on February 03, 2010 (boomark / email).