In re Carlson, District of Minnesota, 08-6013

John Daniel Lamey III

Case Conclusion Date:January 1, 2008

Practice Area:Bankruptcy / Chapter 7

Outcome:Definate guidance on who owns the tax refund

Description:The debtors filed a joint chapter 7 bankruptcy petition. They exempted their entire 2007 Federal and State income tax refunds. The trustee objected to their exemption on the grounds that the majority of the refund belonged solely to Mr. Carlson who worked outside the home, while none of it belonged to Mrs. Carlson who was primarily a homemaker during the 2007 tax year. The lower court found in favor of the trustee, so the debtors appealed. The Bankruptcy Appellate Panel for the 8th Circuit agreed with the lower court. This decision has made the task of allocating and exempting tax returns easier for the debtors bar. Because there is now precedent on the issue, debtor’s attorneys do not have to speculate as to what might happen to clients’ refunds. This opinion especially helps debtors in a case where only one spouse files and the non-filing spouse is the sole bread winner. In such a situation, the trustee cannot take any of the tax refund because based on In re Carlson, it does not belong to the spouse who filed.