10-10101-7 In re Lark

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Bankruptcy
Exemptions; tax refunds

The right to receive a tax refund is not a “depository account” that can be exempted from the bankruptcy estate.

“The right to a refund is more akin to other claims the debtor might possess than it is to an account held with a financial institution. A debtor who holds a note payable might ultimately receive those funds and put them into a depository account, but if the note is still unpaid when the debtor files bankruptcy, the debtor has a claim for the money, not the money itself. That is essentially what happened here. The debtors had the right to receive a refund when they filed, and that asset became property of the bankruptcy estate. Absent exemption, the trustee succeeds to the debtors’ interest in that asset. The debtors opted to utilize the Wisconsin exemptions so as to protect the equity in their homestead rather than the federal exemptions under which they might have exempted at least a portion of the tax refunds through use of the ‘wild card’ exemption of 11 U.S.C. 522(d)(5). It cannot be fairly said that they have not been afforded the protection of the exemption laws, even if they were not able to take advantage of one specific provision.”

10-10101-7 In re Lark

W.D.Wis., Utschig, Bankr. J.