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Chapter 13 Tax Refund Issues
Two issues related to Chapter 13 tax refunds:
1. One of the L.A. Chapter 13 trustees is sending out what appear to be form letters reminding Chapter 13 debtors with confirmed plans of the requirement to send copies of 2011 tax returns and remit tax refunds to the trustee. The problem is the letter may confuse debtors who have plan terms exceeding 36 months since it states tax returns/refunds should only be sent for the first 3 years of the plan. The tax return/refund requirement can be for up to 5 years if the plan pays less than 100% to Class 5 unsecured creditors. I am writing the trustee for clarification.
2. One of the Riverside Chapter 13 trustees is calculating additional disposable income for preconfirmation cases based on the tax refund for the latest filed income tax returns (e.g. add an additional $200 per month to disposable income if Debtor received $2400 tax refunds on 2010 returns). Trustee's position is that it cannot rely on debtors to surrender postpetition tax refunds, so add on the expected extra income now if a debtor overwithholds taxes on paychecks. This is causing Riverside preconfirmation debtors to file their 2011 returns early to show lower refunds. I am inclined to bring this issue before the judge at confirmation hearing because it seems like an imprecise method to calculate disposable income-recapture of postpetition tax refunds seems more precise because it is based on postpetition income and increasing disposable income now for money debtors don't have dooms the plan for failure.
Comments?
Michael Chekian, Esq.
Chekian Law Office
11400 W. Olympic Blvd. #200
Los Angeles, CA 90064
(310) 390-5529
Fax (310) 451-0739
e-mail: mike@cheklaw.com
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