Will The Bankruptcy Trustee Take My Tax Refund in Kansas?

A common question I get this time of year is whether the trustee will take the debtor’s tax refund if he files for bankruptcy.  The answer depends upon many factors.  Talk to your bankruptcy lawyer.  Don’t spend your tax refund until you know for sure your bankruptcy trustee does not claim it.  Spending a tax refund instead of paying it to the bankruptcy trustee can get you arrested.

The Trustee has a duty to administer non exempt assets if those assets are worthy of administration.  For a tax refund to be worthy of administration the refund must be large enough to justify the time and effort to take and distribute the money to unsecured creditors.

If you can wait to file bankruptcy, then often the simplest solution to the problem is to your return,  then receive and use the refund.  We do need to help you spend the refund in ways that will not jeopardize your bankruptcy case.  One huge no-no is paying back relatives with your refund.  You will get your relatives sued by the bankruptcy trustee, which is worse than not paying them back at all. You may use your refunds to pay for your bankruptcy and will be expected to do so.

However, waiting to file bankruptcy is not always possible.  If you are having your wages garnished or a garnishment is scheduled to begin, it may be necessary to file before a refund can be received.   Timing issues will also occur if a house is in foreclosure, or a car is about to be repossessed.

If you cannot wait for whatever reason, the following factors will determine whether the refund will be taken:

  • As previously discussed, is the amount of the refund worthy of administration?   This is an issue of local practice and will often vary from court to court and trustee to trustee.
  • Is any portion of the refund for Earned Income Credit?  Some states have specifically exempted Earned Income Credit.  It is necessary to check state law on this issue.  In Kansas, there is no exemption for Earned Income Credit so you lose it along with your tax refunds.
  • Does your State have a “Wild Card” or “Cash” exemption?  Some states allow a certain amount of cash to be treated as exempt from creditors, other states have what is refereed to as a wild card exemption that will allow a debtor to exempt an item that is otherwise not exempt.  Kansas has no such exemptions.

As can be seen the timing of a bankruptcy when a tax refund is expected depends on many factors.  Local practice and state law being the major considerations.

Consult us.  As your attorney, we will help you maximize the amount of tax refunds you can lawfully keep and minimize the amount you lose to the bankruptcy trustee.

Hat tip to my blogging colleague, Kevin Gipson of New Orleans, who wrote the original version of this post in Bankruptcy Law Network.

Can I File Bankruptcy Without an Attorney in Kansas?

Since the bankruptcy laws were changed in 2005, it is VERY HARD to file a bankruptcy petition without an attorney. The process is difficult and you may lose property or other rights if you do not know the law. The New York City Bankruptcy Assistance Project says, currently, about 9 out of 10 self-prepared bankruptcy petitions are being dismissed—that is, the debtor does not get relief from their debts.

Several Kansas debtors have ended up with federal criminal charges because they failed to disclose property and financial transactions in the bankruptcy cases they filed for themselves.

If you go ahead and file your case without an attorney (the court calls this pro se) and you make mistakes, you will spend more money to hire an attorney to fix your case than you would have if you had hired an attorney in the first place.  I once had a client with a cabinet business.  He thought he could not afford an attorney so he hired an out-of-state petition preparer over the Internet for $300.  The preparer was not supposed to give legal advice, but worse than no advice, he gave bad advice .  The cabinet maker filed a chapter 7 bankruptcy pro se and the trustee demanded shut down of his business, his way of making a living.

My cabinet maker had to borrow money from his father to pay me and to pay the trustee to settle his case and save his livelihood.  All of this drama could been avoided had he hired me from the get go.  It would have cost my client less and he would not have had to pay the trustee.

You can’t put the genie back in the bottle so your newly hired lawyer may not be able to fix all the damage you caused to yourself by filing a bankruptcy without an attorney.  For example, property rights are fixed on the date of filing of the bankruptcy.  If your chapter 7 trustee demands turnover of property, your attorney will not be able to change the date of filing.  It is too late for any prebankruptcy planning.  Your attorney might win a legal argument you didn’t make, but you’ll have to pay the trustee for your property to keep it, or lose it, if there is no valid argument to make.  You may have to convert to chapter 13 bankruptcy and pay for the property through a payment plan.

Warning: many attorneys will not accept a case after it is filed pro se by the debtor without an attorney so it may be difficult to find an attorney after your case is filed.

Don’t Be Fooled by False Letter that Says Your Bankruptcy is Dismissed – Your Stay Still in Effect

A Florida debt adjuster sent letters to Chapter 13 bankruptcy debtors in Kansas falsely telling them that their bankruptcy cases were dismissed and to call right away “to discuss the terms of your dismissal.”  What a scam!

These letters from First American Debt Solutions are absolutely FALSE! The bankruptcy cases are NOT DISMISSED! These letters are outrageous!  They frighten vulnerable consumer debtors and cause panic.  Debtors are tricked into thinking they are no longer protected by the bankruptcy stay against collection.

If you receive one of these outrageous letters, call your bankruptcy attorney right away.  She can assure you the letter is false, your case is active and you are still protected by the automatic stay.  She will want the letter and mailer to save as evidence against this company.  This fraudulent activity have been reported to the Chapter 13 Bankruptcy Trustee, the U.S. Trustee and the Office of the Kansas Bank Commissioner.

Here is part of  one letter two clients got this week: [Read more…]

Wichita Car Dealer Convicted of Bankruptcy Fraud – Facing 5 Years in Jail

A Wichita car dealer who gave money to relatives before filing his bankruptcy case and lied on his bankruptcy paperwork was convicted of federal crimes this week and faces possible jail time for his fraud.

Evidence at trial proved he gave money to his wife and his brother prior to filing his bankruptcy case and he lied on his paperwork. He falsely said he had no bank accounts and he had made no transfers of money to relatives nor closed any bank accounts. He also charged $125,000 on credit cards within a year of filing the bankruptcy petition for airline tickets, jewelry and other goods. [Read more…]

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