Expert: Terry Leeders - 11/11/2007

Question
I am an independent contractor and pay my taxes quarterly.  My income dropped considerable from 2006 to 2007, in fact I was told that I overpaid approximately $9,500.  In working with my accountant, I have not asked to get a refund, rather credit the funds towards my 2007 tax year.  Can these funds be taken or not?

Answer
If you file for chapter 7, any funds that you may be due by the IRS is an asset in a bankruptcy, and is subject to liquidation by the trustee to distribute to your creditors.  Each state has exemptions, and in IL you can exempt up to $4000 per person for wildcard- including tax refunds.

Any portion that is not protected by the exemption is subject to turnover to the trustee.