Around Chicago, we have a judge that wrote an opinion essentially saying the refund is divided up by the amount of income and withholding that went into creating it. If your wife provided all the earnings for the refund, and assuming you don't have other earned income and educational credits, there's a good argument for saying the refund belongs to your wife. You can also just wait until you get the refund, spend it appropriately on necessary household expenses, and then file.
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Filing for BK before the tax return is filed makes no sense as you still need to declare the refund as an asset. If you file BK alone but joint returns the refund is only half yours. There are also certain exemptions you can use to keep the refund depending on the dollar amount.
You should seek a consultation with a BK attorney and also ask about filing Chapter 7 as married, filing individually and separate households.
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I agree with Mr. Benjamin. Use the Find A Lawyer tab on this website to find a reputable bankruptcy attorney near you and schedule a consultation.
The information provided herein is general information only and not legal advice. The information provided herein does not create an attorney client relationship and is not a substitute for having a consultation with an attorney. It is important to have a consultation with an attorney as the information provided in this forum is limited and cannot possibly cover all potential issues in a given situation.
There are four approaches that the Courts have utilized in apportioning ownership of a joint tax refund between a filing and non filing spouse (bankruptcy context), 3 of the approaches use some type of a % of contribution (eg. tax withholdings, overall income, or if parties filed separate tax returns) and 1 uses a bright line 50/50 approach. Unless, you have an event on the horizon that would impact your eligibility for Chapter 7 or would expose some asset to turnover to the Chapter 7 Trustee, you should wait as Mr. Benjamin has indicated. To the extent you need to file sooner than that, you should consult with local counsel. Mr. Benjamin has indicated that at least 1 judge in Illinois would find that you have minimal ownership interest in the tax refund.
In the Southern District of Illinois, if you had no income for the year of the return and had no taxes withheld from income, then you have no interest in the joint refund from the Internal Revenue Service or the Illinois Department of Revenue. The refund belongs entirely to your wife, who had the income and the taxes from it withheld. It is not your personal property. As a result, the trustee would not have a claim against the refund because your wife's income tax refund is not part of your bankruptcy estate. As a result, it would make no difference whether you wait to file or not. See In re: Lock, Case No. 04-60906, Bankr. S.D.Ill. Opinions (2004).
I agree with Mr. Lathram's answer entirely with respect to the Southern District of Illinois, where I too practice. However, bankruptcy courts in the Central and Northern Districts may take a different approach. In fact, judges within the same district sometimes disagree on what the proper interpretation of the statute is. However, the majority position seems to be that the refunds are apportioned between the filing and non-filing spouse according to their proportionate share of the income, which in your case means that none of the income would be subject to turnover to the Chapter 7 Trustee. Best of luck!