Tax Time Bring Bankruptcy Blues

Many petitioners in the middle of a Chapter 13 Bankruptcy are getting what they call a nasty surprise from the Bankruptcy Trustee in the Northern District of Texas. A rule, in place for years, is starting to be enforced widely. It allows the trustee to keep everything over $2,000 in a person's tax refund.

Some in the middle of a Chapter 13 are crying foul. "I don't see this in any of my literature that this is something they have always done. We haven't done it by practice; they set a president they stayed with it

then randomly decided this year they are going to change it. I don't think that's fair at all and definitely considering you are already talking to people that are already financially struggling," said Candace Eich.

Eich was forced into financial ruin when her home was lost in the 2008 floods. She decided on a Chapter 13. "When we sat down and discussed everything with them, they said we would be paying a certain amount monthly for secured and unsecured debt," she said.

Eich has children and cares for her sister with special needs. She relies on a tax refund for an extra windfall in the Spring. "Every month, I was withholding single at a higher rate… So, all of that money from the last year… I'm giving it to them," she said.

Attorney Monte J. White said its that strategy the Court has a problem with. "The trustees and the judges have determined that is a savings account; that they are over withholding every month and they are holding out an extra amount out of their pay check which in essence is a savings account," he said.

Eich said she was just notified of enforcement of the rule in December. "I would have definitely Chapter 7'ed, so them withholding this small little detail is not so small. I would have changed the way I handled my finances considerably," she said.

White said the best way to avoid losing use of the money is to change the way a petitioner plans for taxes. "If you would not over withhold, you would not wind up with this problem," he said.

Paul Harrop, Newschannel 6