I received my tax refund after filing my bankruptcy case. What should I do?

First off, I would never tell you to ignore a court order and skip your 341 Meeting of Creditors and fail to turn over the refund monies!!!!!, but let’s talk about what happens if you do.

(Note, if you’ve already had a bk case dismissed in the last year, you may not want your current case dismissed, because the next time you file, there will be no automatic stay protecting you from creditor collection actions).

So today, I am covering for another attorney, and his client tells the trustee that she received a $7,800 tax refund about a week after she filed her bankruptcy.  This is a chapter 13 case, and she is required to turn over all but the first $1,000 of it.  The problem is that she is a single mom with 2 teenage sons living on a food budget of $200 a month.  For argument’s sake, what if she failed to turn over the $6,800 to the chapter 13 trustee?  Then he would have to dismiss her case in about a month.

If her case were dismissed, she would then have to spend those funds on vehicle repairs, clothing and food for her teenage boys (they eat a ridiculous amount of food), and then crank out a new chapter 13 the next day.

She asked what the court sanction would be for not turning over that refund, and the sanction would be that her 13 would be dismissed and she’d have to start over.  That’s it.

The biggest danger is that in a second filed case in the same year, there may be some issues with how long the bankruptcy protects you, but that’s a discussion for another day.

Now if she were in a chapter 7, she may not able to do this:  if she fails to turn over the refund, the trustee may still intercept it and/or revoke her discharge for failure to turn it over.  This is definitely a question she’d need to sit down and discuss with her attorney.

Leave a Reply