Can I Keep My Tax Return in Chapter 13 Bankruptcy?

Chapter 13 bankruptcy requires fiscal discipline and the willpower to stick to a budget in order to eliminate your debt. It's tough, but countless individuals have been through the process, eliminated their debts, and received a fresh start with their finances. People find Chapter 13 bankruptcy difficult mainly because they aren't accustomed to staying on a rigorous budget, with any excess income being paid to all their creditors. While normal living expenses will be included in your Chapter 13 bankruptcy, extraordinary or lavish expenses may be too much for the trustee to stomach.

Disposable Income

When you file Chapter 13 bankruptcy, monthly income not devoted to normal living expenditures like rent, auto payments, groceries, utilities, clothing, and entertainment, is considered disposable income. Disposable income should be paid to the bankruptcy trustee in order to pay back creditors. Typically, a tax refund will fall under the category of disposable income and be ordered by the bankruptcy trustee to be intercepted to be included in your bankruptcy estate.

Keeping your Tax Return in Chapter 13

In certain situations, you may be able to keep your tax refund while you are still in your Chapter 13 commitment period. The best way to do so is to be able to provide proof that you need to keep your tax return to ensure that you make your Chapter 13 payments while also maintaining all your other obligations.

Alternatively, a debtor can balance their tax withholdings from their monthly pay so that they don’t receive large tax refunds at the end of the year.  Doing so allows debtors to utilize these valuable funds during the year when they need them most.

If you are expecting a large income tax refund, you should notify your bankruptcy attorney. A bankruptcy lawyer may be able to help you modify your Chapter 13 plan to excuse a tax refund.

Bankruptcy Attorney Assistance

In conclusion, it's unlikely that you will be allowed to keep your tax refund check while in Chapter 13 bankruptcy unless you have two things: a really strong need for the money that can be documented and a well-written modification that excuses tax refunds from being handed over to the bankruptcy trustee. For the later of the two, a California Bankruptcy Attorney is a strong necessity, as they will likely have experience with modifying Chapter 13 plans.

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