Tax Refunds in Chapter 13 Bankruptcy

You may have to give your tax refund to the bankruptcy trustee if you file for bankruptcy under Chapter 13. This will allow them to use it to pay your creditors. In certain situations, however, your tax refund may not be included in the repayment plan.

Exemption from Tax Refunds

An initial draft of your plan can be drafted that excludes tax refunds. This could lead to objections from creditors or the bankruptcy trustee who might view a refund as surplus cash. You may ask for a small refund to be exempted to increase your chances of this plan being approved. If you get a bigger refund than you expected, it will not be a violation of your project. You won’t receive more money from creditors.

Needs and limits

This type of plan is not usually accepted by courts because it could create loopholes for debtors by excluding the tax refund from Chapter 13 repayment plans. They might be able to include additional income in their return to receive a larger refund.

Modifying a Repayment Plan to Exempt a Tax Refund

You will need to file a separate plan modification if you wish to exempt a tax refund from your repayment plan. The amount of the refund must be stated as the reason you are requesting the money. You cannot, for example, get a refund to pay for your regular ongoing expenses like groceries or utilities. 

This post was written by Trey Wright, one of the best bankruptcy attorneys in Jacksonville FL! Trey is one of the founding partners of Bruner Wright, P.A. Attorneys at Law, specializing in bankruptcy law, estate planning, and business litigation.

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