Trustee Blog

CCP 704 and Tax Refunds

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The other day on Riverside Bankruptcy Trustee Howard Grobstein’s calendar there was a debtor that had a house that had some much equity that the debtor’s attorney had to use CCP704 to exempt the equity. The exemption covered the house, so the house was protected. The problem though was that the Debtor also had a 2014 tax refund that he is due.

The Debtor’s attorney tried to exempt the potential tax refund under CCP704.070.

This is that exemption:

PRE-PETITION WAGES — C.C.P. § 704.070
“Wages earned 30 days prior to the bankruptcy are partially exempt. This exemption protects 75 percent of the amount you received during this period. If these wages were subject to garnishment, all of these funds are exempt.”

This exemption though does not cover tax refunds. So the Debtor’s tax refund is not exempt and the trustee can ask that it be turned over for the benefit of the estate. This is a common problem when protecting the house.

Practice Pointer: Everytime you use CCP Section 704 to exempt assets in a bankruptcy, think about the potential tax refund that the debtors may be entitled to. Remember CCP 704 and tax refunds are an issue you must cover with your client prior to the meeting of creditors.

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