Brooklyn, NY asked in Bankruptcy for New York

Q: My Ch. 13 Bankruptcy calls for me to turn over my Tax Refund check to the trustee.

What happens if I receive a refund from the IRS but owe taxes on my state tax return (NYS)?

Will the trustee allow me to offset the two or will I have to turn over the Federal Refund and pay the NYS Taxes?

Will the trustee allow me to keep my Recovery Rebate Credit from my Economic Impact Payment .

Thank you very much.

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1 Lawyer Answer
Carl  Cottone
Carl Cottone
  • Bankruptcy Lawyer
  • Brooklyn, NY
  • Licensed in New York

A: Whether or not you keep the federal refund depends upon three factors 1) the basis of the refund, 2) the amount of the refund and 3) how hungry your Trustee is. If the basis of the refund is child/earned income, then the exemption covers it all. There is also a Wildcard exemption of $1,350 that can be applied to any asset.

Otherwise, any refund over $1,000 is usually taken by the Trustee, but sometimes smaller amounts are taken because some Trustees will take almost any amount. Ch 7 Trustees get a flat fee for each case they administer and keep 25% of the first $5,000 or $10,000 of assets they find.

No, you cannot offset what you owe the state with the federal refund. Period.

I don't think the Recovery Rebate has any special exemptions, but however much is left in the Wildcard can be applied.

Timothy Denison agrees with this answer

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