“Am I going to be able to keep my property?” has to be in the top five questions that every person who comes in for a consultation asks me.
The answer? It depends, but in most cases, yes. The Bankruptcy Code allows people who file bankruptcy to protect a certain amount of property. These rules, called “exemptions,” are usually sufficient to cover the property that most people own. While each state gets to decide what their exemptions cover, Colorado has exemptions that cover a bankruptcy filer’s home, household goods, clothing, jewelry, vehicles, and tools of the trade, just to name a few.
Colorado Bankruptcy Exemptions Protect Most Filers’ Property
For most of my clients, these exemptions are enough to protect their property. If they have any property that isn’t covered by these exemptions, we may be able to convert it to protected property before we file their bankruptcy petition. If they have an extra vehicle, for example, that isn’t covered by the vehicle exemption, they can sell the car and use the proceeds (appropriately, of course) before they file. Or they can purchase property that is exempt.
Sometimes it isn’t possible to protect everything. One of the most common piece of non-exempt property is the tax refund. If you file bankruptcy before you get and spend your tax refund, you’ll likely lose it to the bankruptcy trustee. Things get even more complicated if you file before the end of the year before you’ve filed your return.
During the last several months of any year, bankruptcy trustees will start asking to see my clients’ tax returns that they file before next April’s deadline. If they’re due a refund, the trustee can have a portion of that refund, calculated by how much income they earned before they filed bankruptcy.
Say for example you file in October. The bankruptcy trustee will want to see your tax return for that year. He’ll calculate that he’s due approximately 75% of any tax refund you’re due. At the meeting of creditors he’ll ask you to sign an agreement by which you agree to turn this part of your refund over to him. Then he’ll submit the agreement to the court and ask the court to sign an order to enforce your agreement?
What Happens If I Don’t Turnover Property To The Bankruptcy Trustee?
So, what happens if you don’t turnover your tax refund (or any other property for which the trustee has gotten a court order)? The trustee will likely send you a semi-polite letter reminding you of your court-ordered obligation to turn the property over. If you fail to do so, then the trustee will ask the court to deny or revoke your bankruptcy discharge, based on Section 727(a)(6)(A) of the Bankruptcy Code, which states that the court may deny discharge based on a debtor’s refusal “to obey any lawful order of the court”.
Once the court denies or revokes your discharge, your creditors will be all over you like flies on honey. The phone calls will start and soon you’ll be served with the lawsuits that you avoided when you filed bankruptcy.
The best course of action is to abide by the agreement you entered into with the trustee. An experienced bankruptcy attorney can make sure you’re prepared for that and can help you avoid, to the extent possible, having to turnover any property.
Talk To An Experienced Denver, Colorado Bankruptcy Attorney About Protecting Your Property
If you’re thinking about bankruptcy and have questions about whether your property is protected, schedule a free consultation with a top-rated Denver, Colorado bankruptcy attorney to learn more. You can call 303.331.3403 to schedule your appointment or use our online scheduling system.
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