THE U.S. Trustee has recently instructed bankruptcy trustees to conduct debtor hearings telephonically to comply with social distancing guidelines to fight the coronavirus.
The Chapter 13 trustee in Riverside, California has just informed counsel about how that will be implemented in his jurisdiction. Appearances will be done telephonically and/or with video for hearings starting mid-April. Debtors will have to go to their lawyer’s office to sign in and appear for their hearing. Lawyers will then check in with the trustee.
Identification cards, such as driver’s licenses and social security cards, will have to be uploaded to the trustee at least a week ahead of the hearing along with other documents that the trustee asks for. Other documents that are normally mailed in at least a week before the hearing, even in normal times, include paystubs, proof of income or an income and expense schedule for a debtor who is a business owner and pertinent tax returns, the last filed one.
Watch out for your 2019 tax refunds
Trustees are on the lookout for tax refunds even though tax filing has been delayed to July 2020 because of the pandemic. Debtors will still be asked if they expect a tax refund and how much? So debtors must be aware of this and try to exempt the tax refund amount in schedule C, the schedule of exemptions.
So, if you expect a tax refund of $10,000 for 2019, even if you have not yet filed your tax returns, it is wise to exempt the $10,000 in schedule C using the wild card. After all, the expected $10,000 refund is a receivable of the debtor and thus is part of the bankruptcy estate administered by the trustee if it is not exempt.
If there is no exemption claimed by the debtor, the trustee will ask the debtor to hand over the $10,000 refund to the trustee, if and when it arrives. Failure to surrender the $10,000 to the trustee will result in a motion or adversary for the turnover of the money to the trustee at the appropriate time.
How does this work? The client is 50 years old. He does not own a house and he will file Chapter 7 to discharge $40,000 of credit cards. He just got laid off because of the pandemic and has filed his application for unemployment benefits. Although he has not yet filed his 2019 tax returns, he fully expects to get a tax refund of $15,000 in due time. Debtor certainly needs the $15,000 now more than ever before because of lost employment. He has bills to pay, and a family to support. He has to pay rent and buy groceries. He has to make the car payment on time. If he can’t pay the rent, he and his family get evicted and he just might find himself and his family homeless during these trying times. Heaven forbid that this happens to anyone but this scenario is now becoming a distinct possibility for many families.
If he can’t make his car payment on time, the repo guy will strike at any time and most certainly, he will lose his car. Nobody wants to use public transportation nowadays. NY is ground zero in this pandemic because New Yorkers use their subways a lot, and they mostly live in buildings, condominiums and apartments. This is one major reason why the virus spread so quickly in NY.
Southern CA’s built-in social distancing
In LA, we have built-in social distancing because we don’t use our subways. Most of us don’t even know that we have subways. What we use in LA are cars. We love our cars and we love our single-family houses. So, we have built-in social distancing in place. We don’t get packed like sardines in subways. We self-isolate in our cars in our long and traffic-congested commute every day. We just give each other the finger to express road rage, but we don’t give each other the virus. We self isolate ourselves in our daily commute in our comfortable air-conditioned cocoon on wheels. When we go home, we go home to a single-family house detached and totally separate from our neighbors. We don’t go to an elevator to go to our condo or apartment.
Fortunately, for us in Southern California, our cars and habit of using cars, and our detached single-family houses have given us a built-in self-isolation protection from the virus which NY does not have.
Going back to the client — who anticipates a $15,000 tax refund for 2019 even though he has not yet filed his 2019 tax returns — he most definitely wants to keep the $15,000 refund in his pocket because he really needs it to survive this crisis now more than ever.
I will declare in his schedule B of personal assets that he has $15,000 in tax refunds for 2019. That’s the first step. The second step is I will exempt the $15,000 tax refund in schedule C using the wild card.
If your tax refund is only about $1,000, I still suggest you exempt the $1,000, although the danger of having the trustee take the $1,000, is minimal. Why? Because it costs the trustee more than $1,000 to make any move to attempt to get the $1,000. The trustee has to file a motion to get the $1,000 from the debtor. This means he has to hire a lawyer to prepare, file the pleadings and appear in court to ask the judge to grant his motion to order the debtor to turn over the $1,000 to him. As you know, lawyers and legal fees cost a pretty penny. The trustees’ legal fees to get the $1,000 would definitely cost more than $1,000. So, it doesn’t make economic sense for the trustee to get the $1,000 from the debtor.
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Lawrence Bautista Yang specializes in Bankruptcy, Business, Real Estate and Civil Litigation, and has successfully represented more than five thousand clients in California. Please call Angie, Barbara or Jess at (626) 284-1142 for an appointment at 20274 Carrey Road, Walnut, CA 91789 or 1000 S. Fremont Ave., Mailstop 58, Building A-10 South Suite 10042, Alhambra, CA 91803.