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If I filed a Chapter 7 Bankruptcy, can my tax return be taken?

Atlanta, GA |

I started working at my job on August 1, 2011. On September 14, 2011, I filed a Chapter 7 bankruptcy and was discharged on December 23, 2011. I filed my taxes on January 17, 2012 and at first, the IRS said that I would be getting a refund on January 31, 2012, now they are saying that I won't receive my refund until February 21, 2012. Could this be because I filed bankruptcy? I am expecting a tax refund of $8659 and have to pay $5000.00 for a root canal and crown procedure. Are they going to take my tax refund? I have much needed dental work.

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Attorney answers 6


It is unlikely that your tax refund - if delayed by the IRS - is delayed due to the bankruptcy. Call the IRS and ask them why there is a delay.

However if the delay is not the IRS' delay, there are some other possibilities.

Did you list your refund on your Schedules and exempt it? If you are unsure, call your attorney. I don't know which exemptions you used, but in September you were entitled to most of the refund for 2011 and unless this was listed on Schedule B and exempted on C, your Chapter 7 trustee could lay claim to it. In some areas where tax refunds are estate property because there is no exemption to cover them, the trustees routinely have Debtors sign an assignment of the refund. Did you do this? Again, call your bk attorney and ask.

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You need to start off by talking to your bankruptcy attorneys. They should be able to help. As to the refund, any amount of the refund that was due when you filed the bankruptcy is an asset of the bankruptcy estate. However, it appears you worked 3 1/2 months after the bankruptcy filing, and any portion of the refund that relates to those months might go back to you, assuming there is no non-dischargable lien that still attaches after the bankruptcy. Talk to your bankruptcy attorney about this.

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For future, you should re-set your withholding so that you don't end up with such large refunds. I know that the interest rate is low, but you will have lost the interest on the $8659 for the whole year it accumulated (an average balance of about $4300) plus the month of January 2012.

What the other answerers refer to is whether you had a zero asset case with no disbursements by the trustee, and therefore such that the refund is covered by one of your exemptions.

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I practice in the Eastern and Middle Districts of NC and here your refund would be yours to keep. Other districts have differing policies so you should definatelyl call your attorney to see whether you will have to turn your refund over to the trustee.

One question I have is why you are having so much withheld from your check in the first place. Have you routinely had refunds that large? If so, I am surprised the Trustee did not object because you could have about $700/month more in your paycheck which may well affect your means test calculation. Regardless, going forward I recommend adjusting your W2 withholding so that you make less of an interest free loan to Uncle Sam and use that additional money every month to pay bills and put some away or even contribute to retirement.

I agree that the delay is not likely due to your bankruptcy so you should call the IRS to see what is up. It is probably not a big deal.

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If your case has been discharged and closed, the trustee is not making a claim to your tax refunds. In Georgia, the total amount of your wildcard exemption that can be used on your tax refund is $5,600. Double check with your attorney but based on what you have said, it sounds like you are safe from the trustee.

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If you filed your case using an attorney, contact the attorney and ask them to do a Notice of Amendment and to amend Schedules B and C (and possibly the summary of statistical schedules if any amounts change). If you filed your case pro se, then find Schedule B (personal property look for #21, continguent and unliquidated claims) and Schedule C (exemptions). The Georgia exemption code may be found at OCGA 44-13-100. If you have not already had your 341 hearing, make sure you disclose that you are receiving a tax return so that the trustee won't try to say that you have "undisclosed assets". Try to amend your petition ASAP! Good luck.

Ebony C. Ameen

Ebony C. Ameen


I forgot to mention, you must be within the exemption limits to keep the money from your tax return. Any amounts outside of the exemptions are estate property and subject to distribution to creditors, which could make a no-asset case an asset case.

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