Bankruptcy

Why is Tax Refund Season also Bankruptcy Season? And the Season of Dickens?

By Joseph McDaniel, Esq.

One of the reasons is that the tax refund is one of the ways people who are up against it pay for an Arizona bankruptcy lawyer, or a lawyer anywhere else.

Here in Arizona, a tax refund is not exempt.

Therefore, if a debtor files a bankruptcy and then gets a tax refund a month later, that tax refund is going to go to the bankruptcy trustee in the case. Do not fail to ship it over. It belongs to the trustee.

Unless, of course, it comes in PRIOR to the filing of the bankruptcy case. In that situation, the debtor will often use the refund for ordinary living expenses, or use it to buy exempt items like six months worth of food for the family.

Note, by the way, that a gift card at a supermarket won't do the job; food is exempt. A gift card is not.

I'm not sure I agree with that analysis, but a smart Arizona Bankruptcy Judge has written such an opinion, and generally fighting with Judges is a Waste Of Time. Not always, but usually.

But there is also the issue of how to pay a lawyer in a bankruptcy case in Arizona, and that issue is close to my heart and my wallet.

And the tax refund is one of the ways that people find the money to pay their lawyers to file bankruptcy in Arizona.

Of course, others find that money by the simple expedient of deciding that they'd rather save the $1400 per month they were paying on credit cards that they were never going to be able to pay off, and the $1,600 they were paying on a house that was $160,000 upside down, and the $884 per month on the car that was $10,000 upside down, and pretty soon they have the presumably reasonable $3,500 retainer plus the $299 filing fee and the $85 or so for the pre- and post- consumer credit counseling they'll need to pick up.

But some folks want to move faster, or they don't have any income, so not paying debt doesn't work for them; you can't accumulate money to pay for a bankruptcy if you have zip income, even if you aren't paying your creditors!

So they'll go to mom or dad or sis or bro, and say, I love you, and how about some dough to pay a lawyer for my Arizona bankruptcy?

Here's an issue: if the money coming from a family member is a loan, it probably won't cause an issue with the dreaded means test. If it's a GIFT, however, that may well be income that could drive a debtor over the means test amounts, and if so, that could slow down the bankruptcy filing for months. If it's a loan, of course, the family member will need to be listed as a creditor on the schedules.

Just a thought!

And the reason, which I've discussed elsewhere in this blog, that it's also the Season of Dickens is that some of the more compassionate trustees feel a little like Scrooge when they need to demand and collect the tax refund from a hard-hit family during a depression.

But they do it anyway, because it's their job. And like Roman tax collectors, it goes hard with them if they don't do their jobs.

NOTHING HERE CONSTITUTES LEGAL ADVICE RE A CHAPTER 7, CHAPTER 13, CHAPTER 11, OR CHAPTER 12. FIND AN ARIZONA BANKRUPTCY LAWYER WHO IS BOARD CERTIFIED IN BANKRUPTCY LAW, AV RATED, AVVO 10 RATED, ON SUPERLAWYERS, OR JUST VERY EXPERIENCED AND A FORMER CHAIR OF SOME BANKRUPTCY SECTION OR COMMITTEE. NOTHING HERE MAY BE USED AS LEGAL ADVICE IN CONNECTION WITH ANY BANKRUPTCY, WHETHER THAT BANKRUPTCY IS IN PHOENIX, GLENDALE, TEMPE, MESA, SCOTTSDALE, OR ANYWHERE ELSE.

Full post as published by Arizona Bankruptcy Attorney Blog on March 31, 2010 (boomark / email).