U.S. Trustee has recently instructed bankruptcy trustees to conduct debtor hearings telephonically to comply with social distancing guidelines to fight the virus. The Chapter 13 trustee in Riverside has just informed counsel 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 or 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 look out 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 $10K for 2019, even if you have not yet filed your tax returns, it is wise to exempt the $10K in schedule C using the wild card. After all the expected $10K 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 debtor, the trustee will ask the debtor to hand over the $10K refund to trustee if and when it arrives. Failure to surrender the $10K to the trustee will result in a motion or adversary for turnover of the money to the trustee at the appropriate time.

How does this work? Client is 50 years old. He does not own a house and he will file Chapter 7 to discharge $40K 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 $15K in due time. Debtor certainly needs the $15K 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 gets 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 anytime 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 us their subways a lot, and they mostly live in buildings, condominiums and apartments. This is one major reason why the virus spread so fast and so much in NY.

Southern CA has built-in social distancing in cars and single-family homes

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 is 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 everyday. 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 neighbor. 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 client who anticipates a $15K tax refund for 2019 even though he has not yet filed his 2019 tax returns, he most definitely wants to keep the $15K 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 $15K of tax refund for 2019. That’s the first step. The second step is I will exempt the $15K tax refund in schedule C using the wild card.

If your tax refund is only about $1K, I still suggest you exempt the $1K, although the danger of having the trustee take the $1K, is minimal. Why? Because it costs the trustee more than $1K to make any move to attempt to get the $1K. The trustee has to file a motion to get the $1k 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 turnover the $1k to him. As you know, lawyers and legal fees cost a pretty penny. Trustees legal fees to get the $1k would definitely cost more than $1K. So, it doesn’t make economic sense for the trustee to get the $1K from debtor.

“…You need not fear the plagues that strike in the dark, or the evils that kill in daylight. A thousand may fall dead beside you, ten thousand all around you, but you will not be harmed.” Psalm 91

Lawrence B. Yang is a graduate of Georgetown University with a Master’s Degree in Law and specializes in Bankruptcy, Business, Real Estate and Civil Litigation.  He speaks English, Mandarin and Fujian and has successfully represented thousands of clients in California, including companies overseas.  Please call Angie, Barbara or Jess at (626) 284-1142 for an appointment at 20274 Carrey Road, Walnut, CA 91789 or1000 S. Fremont Ave., Mailstop 58, Building A-10 South Suite 10042, Alhambra, CA 91803.