News By Tag Industry News News By Location Country(s) Industry News
| Bankruptcy, Tax Returns, and Incurring New Debt While in BankruptcyIt is that time of year when people who are getting refunds rapidly prepare their tax returns and get them in the mail or do a rapid refund. However, when a person is in a Chapter 13 bankruptcy, they are not allowed to do a rapid refund.
By: Bankruptcy After Default Judgement Once the Trustee gets the tax refund, anything over the amount of $2000 will be kept by the Trustee and applied to your unsecured creditors. They will refund you $2000 of the money. If you are delinquent on your Trustee payments, they can use the $2000 that is to be refunded to you to get you current. This greatly reduced the amount that many Debtors think they will be receiving, and like most people, they have the money allotted to be spent. So, not only will it take 2-3 months for a Debtor to get their tax refund if it is over $2000, they will usually not receive the full amount. The reason the Trustee is able to keep that income and apply it to your unsecured creditors is because your tax refund is considered income for the purposed of bankruptcy, regardless as to what kind of credits you received (education, earned income, etc.). There is a General Order that tells the Trustee how they are to apply the money and how much they are to release to Debtors. If there is money over $2000 that the Trustee is going to apply to unsecured creditors, the Trustee must file a modification with the court. Once the modification is filed, the Debtor or their attorney can file a response explaining why the Debtor needs the full refund. The Debtor is not able to file a motion to get the full refund, but must wait for the Trustee to file the modification first. When you file a bankruptcy case it is explicit that you do not incur debt while your case is pending unless you receive Court permission to do so. In many Chapter 7 cases this is not an issue since the time frame of a Chapter 7 case is short. However, in a Chapter 13 case it is a relevant factor. Since a Chapter 13 case can take at least 3 years to complete, if not longer, people find that there are expenses they incur in that period of time that are essential and at times costly. This is more often the need to purchase a new home, car, or even repair or replace a major appliance. You cannot incur debt while in a bankruptcy mainly so you don’t find your self taking on more debt that you can handle, which possibly led you to file a bankruptcy in the first place. However, there are times when you absolutely cannot prevent needing to finance something. In order to finance a purchase and take on debt while in bankruptcy, you need Court approval. In order to be approved to finance, the item purchased must be reasonable and necessary, such as a car or a home. You then must show that your budget can support the purchase and the Judge will then review the purchase and make a determination as to whether it necessary. There are times, though, that people will purchase something without Court approval. This is a violation of Federal Law. If this is the case, then that individual must file a special Motion to explain to the Court why they needed to purchase the item and why they did not seek permission before doing so. This can cause for a problem if the Court finds that the item was not in the Debtor’s best interest. The client would then have to turn the item back into the creditor and provide them notification that they were in bankruptcy, opening the door to other problems. If you decide you need to purchase something while in bankruptcy, it is important that you understand the law involved, so you don’t fall victim to it. For more information visit http://www.bankrupcy- # # # Bankruptcy After Default Judgement distributes information through its network of websites, press releases, newsletters, and blogs. End
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
