Trustee Blog

Tax Return Time Again

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As I sit in the bankruptcy meeting of creditors, I am reminded that it is tax time again. Each debtor that approaches the trustee is asked if he or she has filed their current tax return. As the Bankruptcy Code provides, the Trustee must be given a copy of the tax return at least 7 days prior to the meeting of creditors:

Rule 4002(b)(3), which implements § 521(e)(2)(A)(i), further provides:

Tax Return. At least 7 days before the first date set for the meeting of creditors under § 341, the debtor shall provide to the trustee a copy of the debtor’s Federal income tax return for the most recent tax year ending immediately before the commencement of the case and for which a return was filed, including any attachments, or a transcript of the tax return, or provide a written statement that the documentation

Fed. R. Bankr.P [Interim] 4002(b)(3).

If a client or attorney fails to provide the tax return to a trustee, the trustee can move to dismiss the case.

[6] Section 521(i)(1) states, in pertinent part:

[I]f an individual debtor in a voluntary case under chapter 7 or 13 fails to file all of the information required under subsection (a)(1) within 45 days after the date of the filing of the petition, the case shall be automatically dismissed effective on the 46th day after the date of the filing of the petition.

11 U.S.C. § 521(1)(1). Section 521(i)(1)’s automatic dismissal provision has been described as “`self-executing, inflexible, and unforgiving.'” Warren v. Wirum, 378 B.R. 640, 647 (N.D.Cal.2007) (citation omitted).

Congress gave the chapter 7 trustees like Helen Frazer the power to ask for the tax return after the 2005 BAPCPA as noted above in code section 521. The trustee views the tax return to verify the debtors financial situation. More importantly for trustees, the current year tax refund is listed. If the tax refund for the current year is not exempted, then the trustee will ask that it be turned over to the bankruptcy estate.

Practice Pointer: Send to the trustee the tax return at least three weeks before the meeting of creditors. Then bring a copy of the tax return to the hearing just in case the tax return you sent gets lost in the mail.

Practice Pointer #2: Exempt the current year tax refund as the trustee will be looking for it. If the tax refund is not exempted, then the trustee will ask your client for it.  This will not make for a happy client if you have not told him about this beforehand.

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