Tax Refund & EIC
Letter to “Ask Leon”
I filed my bankruptcy (ch 7) in MN last October before the new laws took effect and it was discharged Feb 14, 2006. My Trustee has been asking about my 2005 tax returns. I filed my taxes late due to moving and not receiving all my W2s. I’m due a large refund, mostly because of the EIC and Additional Child Credit along with paying in a bunch. Do I need withheld from my wages?
The trustee will probably agree to pro rate the refund, and let you keep a percentage of the money based on how far you were into the tax year on the date that you filed bankruptcy. For example, if you filed on June 30th, (which is half-way through the tax year) you and the trustee might split it 50/50. If you filed on September 30th, the trustee would keep 3/4th’s, because the tax year was 3/4th’s finished on that date. The source of the money, such as EIC and Child Credit probably makes no difference to this allocation. However, there may be even better news for you! You might be entitled to exempt some or all of the refunds. If you filed bankruptcy in Minnesota, you might be able to protect as much as $9250, depending on what your other assets and exemptions are. Please check this out immediately with a capable local bankruptcy attorney. If you have bankruptcy exemptions available, you can file and serve an amended schedule of exemptions to claim what you are entitled to keep under the law.