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Bankruptcy Trustee Forced to Return Tax Refund

Posted By admin || 7-Aug-2009

In the bankruptcy case of Martin, Renee M.; In re, 19 CBN 870 (Bankr. N.D. Tex. 2009) the bankruptcy court ruled that the bankruptcy trustee must return the balance of a joint tax refund to the non-filing spouse.

The details of the bankruptcy case:

"The debtor filed for Chapter 13 relief on Dec. 31, 2008. The debtor's husband did not join her in filing for bankruptcy. The debtor and her husband subsequently filed a joint federal tax return. The debtor did not earn any wages during 2008. The couple's tax refund of $6,482 was based wholly on her husband's earnings. The court ordered that $1,556 of the refund be applied to cure an arrearage in plan payments, $444 be paid to the debtor, and the balance be held by the trustee pending further order of the court."

However, the bankruptcy court later determined that since the tax refund came from the non-debtor's earnings, it was the non-debtor's solely managed community property. The bankruptcy court ordered the trustee to return the balance of the tax return to the non-debtor spouse because it is not the property of the bankruptcy estate.

This is good news for debtors filing bankruptcy who have non-filing spouses who are the sole breadwinners. Oftentimes debtors who have faced a job loss fear that filing bankruptcy will endanger the earnings and/or assets of their non-filing spouse. Well under Texas law, solely managed community property (including wages) of the non-debtor spouse is not property of bankruptcy estate. To find out more about community property and bankruptcy speak with a Dallas-Fort Worth bankruptcy attorney.

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