Non-Debtor Spouse’s Share of Tax Refund Not Part of Estate

Posted by NCBRC - January 31, 2020

The debtor’s non-debtor spouse had no obligation to contribute her share of their joint tax refund to the debtor’s chapter 13 plan even though her income was being used to fund the plan. In re Pelardis, No, 15-10949 (Bankr. S.D.N.Y. Jan. 2020) (unpublished).

The debtor’s confirmed chapter 13 plan committed the amount in excess of $1,500 from his anticipated tax refund. When he and his non-debtor spouse received their joint refund of $6.938, he contributed only his half-share to the bankruptcy estate. The trustee moved to dismiss the case, arguing that because the debtor’s non-debtor spouse had committed her entire income to the debtor’s estate, she was obligated to contribute her portion of the tax refund, and the failure to do so was a material default.

The bankruptcy court disagreed. It found that, under section 1306 and 541, a non-debtor spouse’s share of a joint tax refund does not become part of the bankruptcy estate through operation of the Code. Faced with treatment of joint tax refunds, other courts have routinely separated the debtor’s portion from that of his non-debtor spouse and included only the debtor’s portion in the bankruptcy estate. Here, neither the plan nor the bankruptcy code obligated the non-debtor spouse to devote her portion of the joint tax refund to the debtor’s plan, and the fact that the spouse’s income was used to fund the plan did not render all her property liable to the bankruptcy estate. In the absence of a specific plan provision to that effect and where the Code requires only commitment of the debtor’s property to the plan, the court found that the debtor did not default. The court denied the motion to dismiss.

pelardis decision SD NY Jan 2020


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