ARE TAX REFUNDS SUBJECT TO TURNOVER TO CHAPTER 13 TRUSTEE PART 2

In Los Angeles, it is still standard practice for the Chapter 13 Trustee to require that the debtor turnover to the trustee the first three years of tax refunds obtained during the plan period. This is true at least, for debtors who are over median income for the state. In this example, the California debtor must declare the prepetition tax refund of $10,000 and exempt it under the 703 wild card because the refund is treated as property, not income. The wild card is $21,000 but is available only if debtor has a maximum equity of $11,000 in his residence. Nowadays, having no equity in the residence is not a problem because many residences are upside down. To illustrate, debtor has a residence with a fair market value of $300,000. The first mortgage balance is $350,000. He owns a 2005 Lexus RX 300 with no liens on it. He expects a tax refund of $10,000 for 2011. He files for Chapter 13 on January 2, 2012, to stop foreclosure of his residence and to handle $80,000 of credit card debt, can he keep his $10,000 tax refund? YES, he can keep the refund but he must declare the refund in schedule B as a receivable and exempt the $10,000 in schedule C under 703.140(b)(5).

Lawrence Bautista Yang is a graduate of Georgetown University Law Center and has been in law practice for thirty years. He specializes in bankruptcy, business and civil litigation and has handled more than five thousand successful bankruptcy cases in California. He speaks Mandarin and Fujien and looks forward to discussing your case with you personally. Please call (626) 284-1142 for an appointment at 1000 S Fremont Ave Bldg A-1 Suite 1125 Unit 58 Alhambra, CA 91803.