The Court considered Chapter 13 cases in which Debtors exempted estimated 2017 tax refunds and proposed plans which would have paid between 9-41% of unsecured claims.
Debtor filed his chapter 13 petition on October 13, 2017. Line 28 of Schedule A/B requires him to list “[t]ax refunds owed to you.” He listed “Federal: Estimated 2017 refund. Amt: $2,000.” On Schedule C, he claimed that his “Estimated 2017 refund” in the amount of $2,000.00 was exempt, using the “wild card” exemption of section 522(d)(5). His proposed plan estimates that unsecured creditors will receive nine percent of their claims.
Married Debtors filed their joint chapter 13 petition on October 18, 2017. They disclose “Federal: 2017 State and Federal tax refunds [estimated]. Amt: $9,000.00.” They claim as exempt (under the wild card exemption) “2017 State and Federal tax refunds [estimated]” in the amount of $9,000.00. They have proposed a chapter 13 plan under which unsecured creditors of will receive an estimated recovery of fourteen percent.
Married filed their joint chapter 13 petition on November 201, 2017. They disclose “Federal: 2017 Estimated IRS Refund. Amt: $1,500.00,” and “State: 2017 Estimated State Tax Refund. Amt: $1,000.00.” They claim both of these amounts as exempt under the wild card exemption. Their proposed plan would provide an estimated return to unsecured creditors of forty-one percent.
The trustee has objected to the claimed exemption of the tax refunds in all three cases. His argument is the same: only the portion of the tax refunds that is attributable to the part of the tax year prior to the petition date can be exempt; the portion attributable to the part of the tax year beginning on the petition date is not exempt; and the allocation should be in proportion to the number of days in the pre- and post-petition parts of the tax year, unless the debtor establishes that another allocation would be more appropriate. The trustee is correct,1 and the debtors do not argue otherwise.
The trustee has also objected to confirmation of the debtors’ plans. Each objection is the same:
Trustee is unable to complete his analysis under 11 USC § 1325(a)(4) [liquidation analysis] due to apparent over limit or improper claim(s) of exemption.
Trustee has filed an objection to exemptions . . . . Until such time as the court rules on that objection, Trustee cannot recommend confirmation or denial of confirmation.
The debtors did not file a written response to the trustee’s objection. At the confirmation hearing, they argued (in summary) that the excess claim of exemptions is not relevant to confirmation because the plan would meet the confirmation requirements even if the debtors’ exemption claims were reduced as the trustee says they must be.