Earlier this week, I used an actual Iowa bankruptcy case to illustrate to Bankruptcy in Indiana readers the way the homestead exemption works in Indiana. Today, by way of explaining the way tax refunds are handled when it comes to filing individual bankruptcy in Indiana, I’m going to use a case from bankruptcy court in the state of California. It’s important to explain that, while each state has its own set of bankruptcy laws, the general principles and guidelines on which the new bankruptcy laws of Indiana are based come from federal law.
The bankruptcy trustee wanted to deny Mr. & Mrs. D’s bankruptcy petition for failing to surrender an income tax refund they’d received a few months after they’d filed.
The D’s had filed under Chapter 13 bankruptcy law, which means they were entering a debt repayment plan period, where each month they would make prescheduled payments to the court to be distributed to creditors.
Mr. & Mrs. D. had filed personal bankruptcy in March, and did not receive the refund until June, a month after their bankruptcy plan had been confirmed.
The court ruled in favor of letting the couple keep the tax refund. Why? Because it related to money that had been over-withheld from their paychecks long before they ever filed bankruptcy.
As a debt consolidation lawyer for so many years, I particularly appreciated one aspect of the California court’s decision: the court allowed the couple to decide to voluntarily contribute the tax refund to the plan, in order to “speed up” the completion of their plan.
- This true story also reinforces the fact that filing personal bankruptcy in Indiana, despite the many bankruptcy myths to the contrary, can help with taxes.
Sometimes, in order to provide Indiana bankruptcy information, it helps to go out of state!
Categorised in: Bankruptcy Indiana
This post was written by Mark Zuckerberg