Preparing Tax Return

If you filed a bankruptcy case in 2010 you may have forgotten about the tax refund you’ll receive in early 2011.  Be assured that you bankruptcy trustee hasn’t forgotten.

Just think of the 2010 tax refund as an “account receivable” or legal right to receive money in the future.  It’s clearly an asset and is often retained by the debtor by utilizing a personal property exemption to pull it back from the reach of creditors.  However, if no exemption was used, the Chapter 7 Trustee will intercept the refund.

Sometimes this is an issue over just a few hundred dollars and in rare cases a few thousand dollars.  However, the issues are the same when it’s over millions of dollars.

In Nevada there’s an ongoing dispute between the FCIC and the Chapter 7 Trustee for Silver State Bancorp which is the parent company of Silver State Bank of Henderson.  The bank was placed into receivership by the FDIC in 2008.  The losses to the FDIC were expected to exceed $450 Million.

A bankruptcy case was filed in Las Vegas for Silver State Bancorp.  The Chapter 7 Trustee then took the losses that the bank had for a period from 2006 through 2008, amended the tax returns from previous years by carrying the losses backwards.  The result:  A refund of over $8 Million for tax year 2006.  There are similarly large expected refunds for tax years 2007 and 2008.The Trustee has already distribution most of the $8 Million.

However, the FDIC is screaming “foul.”  It claims that because it was the receiver, then the Chapter 7 Trustee doesn’t own the funds.

The fight continues even today.

Your case may not involve millions.  However a refund of taxes creates real cash that can be used for groceries, gas and medical care.  Be sure to ask your bankruptcy lawyer to use your exemptions to remove your tax refund from the reach of the trustee.  This is just one more reason to choose an experienced bankruptcy attorney to help you with your bankruptcy whether you are filing a Chapter 7, a Chapter 11 or a Chapter 13 bankruptcy.

Photo Credit:  “Cowboy” Ben Alman