If I paid a debt using my tax refund beforemy bankruptcy was filed, why would the trustee ask for the my tax return?

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If I paid a debt using my tax refund beforemy bankruptcy was filed, why would the trustee ask for the my tax return?

I used my tax return to pay a credit card debt. Because the card was held by the company I worked for I likely would have been fired if the debt was discharged. My attorney was made aware of this. I filed the bankruptcy a few months later and now the trustee has filed a motion for the money. Why would I owe this to the trustee if I can prove I used the money to pay a debt?

Asked on February 16, 2012 under Bankruptcy Law, Florida

Answers:

Charles Fyler / Apple Law Firm PLLC

Answered 9 years ago | Contributor

The trustee has an interest in all property you owned or had a right to at the time of filing.  Although tax refunds are given to you when you file taxes, you have earned a pro rata share depending on the time of year.  If you file bankruptcy six months out, the trustee would be interested in 6/12th of your return (50%).  This being said, there are exemptions you may be able to use to protect these funds.  If you didn't use all of your wildcard exemptions already, your attorney may be able to amend your Schedule C (Exemptions) and protect the refund.  If you don't have an exemptions left you can usually negotiate a deal with the trustee to pay back the funds over a 12 month period.


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