Sunday, March 03, 2013

Can a chapter 7 bankruptcy trustee take my Federal or New York State tax refund?

The answer is yes! The amount of cash that is exempt in a chapter 7 personal bankruptcy filing in New York State is $5,000 if the debtor does not own real estate. Accordingly, for a single debtor, if their New York State or Federal tax refund exceed $5,000 then the bankruptcy trustee can require the debtor to turnover to the bankruptcy trustee the difference between the tax refund(s) and $5,000.  However for example if a debtor files for bankruptcy in June of a given year, then the amount of the tax refund would be prorated between the pre bankruptcy period (January through June which monies would be paid to the bankruptcy and the post bankruptcy period (July through December which monies would not be paid to the bankruptcy trustee. If a debtor thought that they may be receiving a large tax refund after their bankruptcy filing, they could also lower their claimed exemptions or withholding to reduce their tax refund

1 comment:

Avery Schlacter said...

This was really interesting. I've been trying to help a friend find a bankruptcy trustee in London Ontario and this was really helpful thanks.