In the bankruptcy case (Laroche, Wayne W. and April J.; In re), the bankruptcy court ruled that debtors filing bankruptcy must disclose their tax refund even if it is only an estimate based on previous years.
The details of the bankruptcy case:
In the Chapter 7 bankruptcy case the debtors failed to disclose their estimated 2008 tax refunds during the first meeting of the creditors on December 15, 2008. On February 13, 2009, the bankruptcy trustee filed her interim report noting the missing tax refund. But on March 26, 2009, the bankruptcy trustee received the debtors’ $4,420 tax return and scheduled it as an asset of the estate. However, the debtors’ tried to claim the tax return as exempt.
The tax return was not exempt and was considered an asset in the bankruptcy estate. Furthermore, the debtors were required to file an estimated tax return with their bankruptcy paperwork and they failed to do so. This could have given the impression that they were attempting to hide an asset; but the bankruptcy judge recognized that it was a common error.
The bankruptcy judge said:
“Although the debtors’ actions in this case are not a model for what should have occurred, their actions likewise do not rise to the point of showing that there was any intent to conceal an asset of the estate or to act in anything but good faith,” the court said. “The court’s conclusion is also based upon the widespread notion, as the court has noted in other cases such as this one, that attorneys for debtors were not aware that tax refunds were and are property of the estate.
Hopefully, cases such as this one and other related cases, send a clear message to practitioners that tax refunds must be disclosed on Schedule B, even if the amount is an estimate based upon prior years experiences.”