Recently discharged – are the creditors entitled to our income tax refunds?
Myself and my husband were both just discharged from bankruptcy in January 2006. The discharge was conditional upon us paying the estate money owing due to us both having excess income during the bankruptcy period. Our trustee called yesterday saying we’re both receiving income tax refunds. After paying the money we owe the estate, there’s still a refund of nearly $2,000 left over. Are we entitled to this or does it go to the creditors? Our trustee said he would “see what he could do” to see if we would get some of it. My husband thought giving up the tax refund was voluntary. Who’s right? We were really hoping to have this money to apply for a secured credit card to start rebuilding our credit. Thanks so much!
The answer to this depends largely on what was said in your conditional order of discharge. Each firm has a different process and a different way of wording those orders and if that order states that the funds from any subsequent years taxes are to be an asset of the estate up to the time you have paid the outstanding balance in full, then the returns belong to the estate. From the sounds of it the Trustee has simply permitted the outstanding balance to be paid by any subsequent years tax returns (which is very normal) but is simply unwilling to commit to promising you the money in case there is some difficulty and the estimated refund is much less than the actual refund.