Expert: Terry Leeders - 2/18/2008

Question
Dear Mr. Leeders, My situation is that I had $20,000.00 of credit card debt.  I had the credit card for many years and had always been a faithful and on time payor.  However, when the law required credit card companies to double the minimum payments due - I could not always make the full payment on time.  They started charging late fees and jacked up my interest rate until it became over 30%!  I still juggled and struggled and borrowed money from my mother and my boyfriend and I even did a debt consolidation thru non-profit and I paid on it for a year.  I finally could not borrow from my family anymore and filed Ch. 7.   The only assets I have are my house and my car which is paid off.  The trustee discovered that I have a $3800 tax refund (due to child in college)and wants every penny of it.  Is this something the trustee has to take by law or is it up to his discretion?  If I go to the final meeting and speak with him myself and tell him that I did not take filing bankruptcy lightly (a lot of the credit debt was for medical bills) and that I am depending on my tax refund for expenses such as dental, car repair, and medical needs, will it do any good?  Also, if I have already spent some of the money to fix my car, what will he do to me?


Answer
Hi Suzanne,
This is a very common scenario.  (and popular question!)
Each state has exemptions to protect tax refunds.  Your attorney should exempt as much of it as possible.  In Illinois, for example, I can protect 100% of earned income credit portion, then up to $4000 for an individual filer.  Other states the exemption can be as low as just $100!!  Therefore, the trustee can go after some tax refunds.  If you have spent it despite the turnover request, you will need to turn over whatever you do have, and may have to pay the difference, otherwise the trustee could file a motion to deny your discharge.  Hopefully, they will be flexible and allow you to pay the amount you spent on payments if needed.  Talk with your attorney, and they will best advise you how to prepare for the 341 meeting, as they have worked with this trustee on numerous occasions.