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Brent Blanchard
Brent Blanchard, Bankruptcy Attorney
Category: Bankruptcy Law
Satisfied Customers: 1975
Experience:  Twelve years experience in all aspects of debtor & creditor BK.
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Hello, I like the answers you have given so far in regards

Customer Question

Hello, I like the answers you have given so far in regards XXXXX XXXXX case involving the retitution check and the amended tax return I am thinking of filing for 2008 in regards XXXXX XXXXX theft loss. I can also understand the need for a local attorney, but I am finding that attorneys have varying opinions. I am resigned to the fact that I am turnig over the funds from the restitution as that is considered part of the estate, but I think that the "loss" that occured and would result in the tax refund was incurred when the restitution check was issued after discharge. The attorney that I had retained quit last week due to the following opinion and I would like to know if you could add anything please. He feels that the full amount of the refund and not just a pro rata to the date of filing is part of the estate. we filed on 1/8/08.

Section 541 of the Bankruptcy Code is clear that property of the estate includes “all legal or equitable interests of the debtor in property as of the commencement of the case”, subject to a few exceptions that do not apply in your situation. If there was any possibility, as of the petition date, that you might eventually get a tax refund due to circumstances that occurred before filing; that possibility of payment generally constitutes an “interest”. The interest may have been a contingent interest—in other words, there may have been no guarantee you would actually get it. It may also have been unliquidated—in other words, you may not have known at the time how much money you could actually get. But it was an interest nonetheless. You cite the date of January 1, 2009 as the date the interest arose. I would be more inclined to view that date as being (approximately) the date your interest became noncontingent (you were sure you’d qualify for the refund based on the loss) and liquidated (you knew, or could reasonably calculate, exactly how much that refund was gong to be). But I see the interest as having existed ever since the date you suffered the loss that qualified you for the tax refund. As much as I wish it to be otherwise, interests—even very vague interests—do not generally pop into and out of existence at our convenience.

The bankruptcy paperwork requires the disclosure of even contingent, unliquidated interests (specifically including tax refunds—see Schedule B, line 21). I believe very strongly that this tax refund must be disclosed under the plain language of those forms; which is why we insisted on disclosing the restitution check’s existence to the trustee and also why I told you we would do no future work on the case without your authorization to make a full disclosure of the tax refund.
Submitted: 6 years ago.
Category: Bankruptcy Law
Expert:  Brent Blanchard replied 6 years ago.
Thank you for your question.

I can understand some caution and wanting to be sure.

In bankruptcy, the key date is the date of filing--what "interests" existed as of that date?

A tax refund is an "interest", and the analysis from your quoted Answer is correct.

To perhaps make it more clear, consider this: The right to receive money back from the U.S. Government arises either the date they received the first excess dollar (the payroll check or other payment from which YOUR money paid to Uncle Sam came), or at the very latest, the date the final tax liability for that year became known or knowable (sometime between issuance of the W-2 and the date the taxes were filed, at the very latests). That right to refund exists even if you didn't know about it YET because of a filing error.

The BK Trustee is going to be interested in whether, on the date of filing, there was ANY ghost of a chance of getting a refund. It's exactly the same as for one of my clients who did not file BK after his wife was killed in an accident--there was a right to sue and get some money out of that accidental death, which existed as of the date of filing (if a case had been filed), and the BK Trustee would have been able to legally "take possession" of that claim even though it was uncertain, unliquidated, and its dollar value was impossible to know at that time.

It also sounds like the last paragraph of your question is from the BK attorney who helped you file on 1/8/2008.

For about two years now, part of my "standard speech" to potential BK clients includes the idea that part of the "price" debtors have to pay to get relief under the US BK Code is full financial disclosure. If you want the monetary benefit of escaping liability for debt, you also must disclose your monetary history, within the limits of what the law requires. So, just like my clients must reveal that they sold the family homestead to a cousin for half-price less than a year ago, my clients also must reveal the existence of all tax refunds and other financial interests which exist as of the date of filing.

Thank you.

Customer: replied 6 years ago.
Relist: Inaccurate answer.
Expert:  Brent Blanchard replied 6 years ago.
Since no one else has taken this up since the re-list, please explain what is inaccurate and what year's taxes the refund applies to?

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