Bankruptcy

How to annoy, upset and aggravate your bankruptcy trustee and delay your discharge ? part 3

By David Leibowitz, Illinois and Wisconsin Bankruptcy

It’s tax return season.  Most of the time, you are not thinking of your income tax refund when your visiting your bankruptcy lawyer’s office.  The one exception is if your attorney is asking you to pay your fee with it.

Why should you care about your income tax refund when you are filing bankruptcy?  Because on two separate lines of Schedule B, you are asked to state under oath whether you have a tax refund coming to you.  In one question, you are asked if you have a tax refund due in a known amount.  And in another question, you are asked if you have a tax refund due in an unknown amount.

All too often, your bankruptcy lawyer won’t ask and you won’t tell that you expect a tax refund.

Bad idea.

Your bankruptcy trustee can guess whether you have a tax refund due based on what you got back last year.  So if you fail to list a tax refund due, the following bad things could happen

• The trustee may intercept the tax refund directly from the IRS
• You may not get a chance to claim any exemption to which you might otherwise be entitled
• Your bankruptcy case might stay open for a long time because the tax refund will be used by the trustee to pay creditors
• You might even lose your discharge – although that would rarely be the result

Why take chances?  Disclose your tax refund to your attorney.  Maybe you can make plans to use it for something worthwhile before you file your bankruptcy.   Maybe you can exempt it in whole or in part.

Full post as published by Bankruptcy Law Network on February 20, 2010 (boomark / email).