04 Feb What happens to Non-filing Spouse’s Tax Refund in Bankruptcy?
What happens to tax refunds in a bankruptcy case?According to a recent decision by Judge Krechevsky of U.S. Bankruptcy Court in Connecticut, not only is a non-filing spouse’s tax refund not part of the bankruptcy estate subject to a grab by the U.S. Trustee, the tax refund itself must be apportioned according to the contributions withheld from the respective spouse’s pay in the calendar year for the tax refund.
In the case of In re Kimberly Michelle Edwards, Case No. 05-23528, the debtor’s husband did not file bankruptcy and in the tax year of 2005, he contributed $12,615.00 in withholding for his pay for state and federal taxes. The debtor wife, Kimberly, had $183.00 withheld from her pay. The Trustee wanted a pro-rata portion of the $10,116.00 joint federal and state tax refunds or $3,820.07. The Court declined, ruling that the Trustee was only entitled to the portion of the tax withholding represented by the Debtor’s actual contributions prorated through the partial year to the date of the bankruptcy filing or $109.25.
see also: Tax Refunds as Assets