has anybody else had this problem with taxes and bankrupcy?

Question

I filed chapter 7 bankruptcy and when i had the meeting of creditors the trustee handed me a note about my 2006 income tax return. What it said is that i would have to submit a copy of this tax return and the refund check to her. I dont have a problem turning over a copy of the taxes, but the refund check? I dont know why they would need that if it is chapter 7 and all debt was erased, nothing is being paid back. And this was understood by my lawyer as well. So we are both puzzled to why they need this check. has anybody else seen or had to do this?

btw the bankruptcy was discharged in the middle of December thats why i was asking that since its already discharged why they would need it.

Answer 1

Debts aren't actually "erased" in bankruptcy. They (your unsecured creditors) have a right to any non-exempt assets that you have. Your tax refund is one of those non-exempt assets. The non-exempt assets are divided up proportionally amongst your creditors as payment of the debt(s) in full.

Exempt assets typically include a certain amount of equity in your home and car, along with your household effects such as clothing and some furniture. The "tools of your trade" are also protected as well. Most retirement funds are also exempt from attachment in bankruptcy but there are exceptions to that.

Non-exempt assets include excess equity in your home or car, expensive furniture, art and coin collections, bank balances above a certain amount, non-retirement investment accounts, stocks and bonds, rental properties that you own and usually pending tax refunds that arrive or are expected to arrive before the bankruptcy is discharged.