Expert: Terry Leeders - 2/5/2009

Question
QUESTION: My husband and I filed bankruptcy in Idaho in September and it was discharged and our estate was closed as of 12/22/08. We were told that we would have to file our tax information with the court once we filed our taxes. We just filed our taxes and are due a refund of approx $2200 between state and federal. How is it that they can take this money from us after our bankruptcy has been discharged and our estate closed and is there anything that we can do about it? We had said that we didn't expect to get much back this year because last year we only ended up with $9. And if they do take the money - what do they do with it???

ANSWER: Tax returns are assets of the bankruptcy estate.  some states require them to be turned over, as there is little or no exemption to protect it. The funds are paid to your creditors, and the trustee gets administrative expenses.

---------- FOLLOW-UP ----------

QUESTION: So even though the case has been discharged and the estate has been closed they are still entitled to my refund? I just don't understand why they would do that since all of my creditors have already written off my debts... Are there ever any special situations where they might consider allowing a person to keep their refund - such as medical care that is necessary but we're not able to afford it?

Answer
The asset is part of the bankruptcy estate, while a case may discharge, it can stay open to administer assets, such as tax refunds. The creditors may have written off the accounts, but they are entitled to their pro-rata share of the assets that are administered in the case.  You are only allowed to protect assets that are covered by your allowable exemptions, and the court does not factor in the special circumstances you describe.


Thanks for the low rating on timeliness, I only answered your original question 4 minutes after you wrote it.