Expert: Mark J. Markus- California Bankruptcy Attorney - 2/10/2009

Question
QUESTION: My husband and I live in Idaho and filed bankruptcy in 2008 and it was discharged at the end of December 2008. We received a letter a few weeks after we received our discharge letter stating that our estate has been closed - does this mean that we do not have to file our 2008 tax documents with the court? I have heard that they can discharge your bankruptcy but leave your estate open to allow them to disburse any refund you may get from your taxes. Since my estate has been closed does that mean that I don't have to file my tax documents? We did get a refund of a little over $2000. Thank you.

ANSWER: First of all, the discharge is not the same thing as the closing of the estate.  Your case remains open until it is closed.  If you have a tax refund, that should have been listed as an asset on Schedule "B" of your bankruptcy papers.   But in any event, technically yes, the refund belongs to the Trustee in your case unless you have an exemption which protects it.  I have no idea what Idaho's exemptions are, but depending on the amount of the refund, you may be able to protect part of it and the Trustee may not have any interest in it.

There is the additional complexity of figuring out how much of the refund is allocated for the portion of the year prior to your case being filed, based on the income you received.   That is beyond the scope of this service to figure out.

You need to discuss this with your attorney or with a bankruptcy attorney in your location.

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QUESTION: I understand that the discharge is different from the closing of the estate. We received our discharge letter shortly after our actual discharge, and then we received a letter stating that our estate was closed a couple weeks after that. We only received a refund of $9 last year and didn't expect much this year. We didn't list our refund as an asset of the estate when we filed because we weren't expecting a refund and we hadn't filed our taxes yet because our bankruptcy was discharged and the estate was closed prior to our being able to file our taxes for 2008. The discharge was 12/22/08. So now that the estate has been closed, does that mean that they have released all interest in our estate, such as our 2008 tax refund. I have a call into my attorney, but sometimes it takes weeks to hear back from them.

ANSWER: No, the Trustee is entitled to it regardless of whether the estate is closed or not.  He can easily reopen the case if necessary to administer assets which were omitted.  The question is going to be whether it's even worth his/her time to do that based on the amounts involved.   You're probably fine just not doing anything because he/she will likely not find out about the refund anyway, but if you want to be purely 100% up front about it, you should send a letter to the Trustee notifying him/her of the inadvertent omission and let them decide if they want to reopen the case to administer that asset (again, minus any exemption you may be able to take on that).   I'm guessing it's not going to be worth their time, but I don't know what they do in Idaho.

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QUESTION: That makes sense - suppose I don't make them aware of my refund and they find out about it, could they throw out my bankruptcy now that it's been discharged? Or would they just request the money if they decided it was worth their time?

Answer
I doubt that there would be any major ramifications, unless they could prove that you intentionally omitted it from your bankruptcy papers.  Most likely the worst case scenario is that you'd have to just pay over the refund amount whenever it was asked for.  But again, you should verify all this with your attorney because local practice and procedure does vary.