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Ask Terry L. Your Own Question

Terry L.
Terry L., Attorney
Category: Bankruptcy Law
Satisfied Customers: 2523
Experience:  Better Business Bur 15yrs bankruptcy experience. Chicago Bar
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husband is filing for Chap. 07 BK and wife is not. husband

Customer Question

husband is filing for Chap. 07 BK and wife is not. husband is about to see his tax preparer to file their 2011 tax returns. Husband and wife in prior years have filed joint. wife who is not filing for BK earns substantially more than husband.
1) Should husband file married filing separately for 2011, so as to distinguish his income from his wife, as the total amount; or they should just file it the same as prior years as filing joint return?

2) how should the husband fill-out the "1. Income from employment or operation of business" (Statement of financial affairs) when the prior years 2010 and 2009 husband and wife filed jointly--- should he put down the gross income he made by himself and not include his wife's income; or should he put down the total gross amount stated in the joint income tax return for years 2009 and 2010 and let the Trustee sort out the numbers; or he should put down the total gross income for himself and wife but put down a separate amount( alongside the joint income figure) of income for himself as he is the only one filing for BK?
Submitted: 2 years ago.
Category: Bankruptcy Law
Expert:  Terry L. replied 2 years ago.

Terry L. :

Hi, thanks for your question. You should hire a lawyer for specific legal advice. No attorney client relationship is created here.

Terry L. :

When a debtor files bankruptcy, they would list all household income.

Terry L. :

Now, if just one spouse is filing, the debtor can deduct the marital deduction on the means test, for debts that the non-filing spouse pays - her credit cards, her medical, her loans etc if they aren't already accounted for in other areas of the means test calc.

Terry L. :

Filing separate taxes would only split up the tax refund accordingly, if they expect a large refund that would not be exempt with just 1 spouse filing.

Terry L. :

In cases like this, where I can't see the split in income from the prior years, I would list : 2009 Joint income from tax return XXX

Terry L. :

2011 Debtor income from W2/pay advices

Terry L. :

is xxxx

Terry L. :

something like that.

Terry L. :

that way the court can see that the older year is joint income.

Terry L. :

If he knows the actual gross for his income in the prior years, then just go with that figure

Terry L. :

Do you have any other questions?

Terry L. :

hi there

Terry L. :

what is your question?

Customer:

If i am not mistaken, it should be ok for them or is a viable option to file joint return for this year 2011, as long as husband can figure out what his actual gross income is and put that figure down or put down the figure from his w-2 in the statement of financial affairs? the reason husband is considering filing separately is because he thinks that having his wife's income in their joint tax return would impact negatively by the trustee bec. of the higher amount.

Terry L. :

I recommend to discuss that with the tax preparer to determine how best to file.

Terry L. :

The reasoning is..

Terry L. :

they want to take advantage of all deductions available.

Terry L. :

Then it becomes an issue of when best to file.

Terry L. :

The issue is if the spouse files bankruptcy first, then any possible tax refund is an asset of the estate.

Terry L. :

Then, it isn't clear cut as to splitting the refund.

Terry L. :

It depends on the judge assigned to the case, as there is a split of descisions out there.

Terry L. :

either 50/50 or percentage based, based on the income.

Terry L. :

Then you need to look at the available exemptions to cover tax refunds to prevent the trustee from taking the refund.

Terry L. :

So, best to talk to your tax preparer first, then talk to your bankruptcy attorney.

Terry L. :

when there is a refund issue, I usually wait until the taxes are filed, refund received and then spent on necessities before filing.

Terry L. :

Cases can vary, so discuss all these issues with the bankruptcy attorney to best advise you on when the best time to file the case would be.

Terry L. :

Do you have any questions?

Customer:

ok, thank you.

Terry L., Attorney
Category: Bankruptcy Law
Satisfied Customers: 2523
Experience: Better Business Bur 15yrs bankruptcy experience. Chicago Bar
Terry L. and 2 other Bankruptcy Law Specialists are ready to help you

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