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John A. Flynn, Esq.
John A. Flynn, Esq., Attorney
Category: Bankruptcy Law
Satisfied Customers: 202
Experience:  14 Years Experience in Bankruptcy - Mid-South Super Lawyer
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So if I have a brokerage account that is not subject then to

Customer Question

So if I have a brokerage account that is not subject then to any exemption and is proeprty of the bankruptcy estate, who is responsible for the tax consequences of taking that money? Can I turn the entire account over the to trustee? Or do we determine the after-tax value and then I pay her that amount.
Submitted: 4 years ago.
Category: Bankruptcy Law
Expert:  cfortunato replied 4 years ago.

cfortunato :

Hi JACustomer,


 

cfortunato :

Are you asking about income tax?

Customer:
Customer:

Well, presumably there is capital gains tax if the account is withdrawn.


 

Customer:
Customer:

Have to go fyi. Will check back later.


 

cfortunato :

Okay.

cfortunato :
cfortunato :

I do not know the answer to this question, so I will opt out so that someone else can help you.

Expert:  John A. Flynn, Esq. replied 4 years ago.
If you file a chapter 7 and the Trustee liquidates the account to pay creditors, it is simply a forced sale, and any capital gains tax you might owe by reason of the sale would be owed by you. If you are going to file a Chapter 7, you would be better off liquidating the account yourself and prepaying your estimated capital gains taxes to the IRS.
Customer: replied 4 years ago.
Can I simply deliver the account to the trustee in kind?
Expert:  John A. Flynn, Esq. replied 4 years ago.
you certainly can, but if there are gains upon the Trustee selling the securities in the account, then you would be liable for those capital gains taxes, yet you would receive none of the proceeds to help you pay the taxes. If you sell the securities yourself, you can legally use some of the proceeds to prepay the capital gains taxes associated therewith. You also might be able to convert some of the cash to non-exempt property, for instance by paying down your home mortgage if you have homestead exemptions left. But if you know the sale of the securities in the account will result in capital gains, then your best bet is to sell them yourself so you can prepay the taxes. Otherwise, after your bankruptcy, you'll get stuck with a tax bill on money you never saw.
Customer: replied 4 years ago.
Interesting. Even by transferring ownership of the account to the trustee, I would still be responsible for the capital gains tax then? If I am already in bankrutpcy, would my best bet be to convince the trustee to allow me to sell the securities myself, pay the tax, then turn over the remainder to her?
Expert:  John A. Flynn, Esq. replied 4 years ago.
The Trustee might agree to that. It never hurts to ask. If she does not, you (or your attorney) could file a Motion to allow you to do that. I think the equities are on your side as bankruptcy is not designed to get you deeper in debt, so the Court might allow you to do that and turn over what you don't need for capital gains taxes.
John A. Flynn, Esq., Attorney
Category: Bankruptcy Law
Satisfied Customers: 202
Experience: 14 Years Experience in Bankruptcy - Mid-South Super Lawyer
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