Does Chapter 13 Take Your Tax Refund?

Understanding Chapter 13 Bankruptcy and Tax Refunds

When filing for Chapter 13 bankruptcy, it’s important to understand how your tax refunds will be treated. In general, you will be required to turn over your tax refund to the Chapter 13 trustee, who will distribute it to your creditors. However, there are some exceptions to this rule.

Exceptions to the Tax Refund Rule

You may be able to keep your tax refund in Chapter 13 if:

  • Your plan specifically allows you to keep your refund. This is typically only the case if you are paying your creditors in full.
  • You can demonstrate financial hardship. If you can show that you need the refund to cover essential expenses, such as food, housing, or medical care, the court may allow you to keep it.
  • You are paying at least 70% of your unsecured debts. If you are paying a high percentage of your unsecured debts, the court may be more likely to allow you to keep your refund.
  • You are paying all of your unsecured debts through a “100% plan.” If you are paying all of your unsecured debts in full, you will be able to keep your refund.

How to Keep Your Tax Refund in Chapter 13

If you believe you qualify for an exception to the tax refund rule, you must file a motion with the court. In your motion, you will need to explain why you should be allowed to keep your refund. You will also need to provide documentation to support your claim.

Consequences of Not Turning Over Your Tax Refund

If you fail to turn over your tax refund to the Chapter 13 trustee, you may be subject to penalties, including:

  • Dismissal of your bankruptcy case.
  • Denial of a discharge of your debts.
  • Additional fees and costs.

Understanding how tax refunds are treated in Chapter 13 bankruptcy is crucial. By following the guidelines outlined above, you can increase your chances of keeping your refund and successfully completing your Chapter 13 plan.

Why do you have to Send your Tax Return to the Chapter 13 Trustee?


How much of my tax refund can I keep for Chapter 13?

If Your Chapter 13 Plan Is a “100% Plan” or Close to It, You Can Probably Keep Your Tax Refund. If your plan doesn’t state whether you must turn over your tax refund, check how much your plan pays creditors. You might not have to hand over your refund if you’re already paying everything you owe or close to it.

Can the trustee keep my tax refund?

There are two types of bankruptcy for individuals, Chapter 7 and Chapter 13. The bankruptcy trustee can keep your tax refund in both, though with Chapter 7 it will happen only once. With Chapter 13, it can happen every year of your repayment plan. Nearly two-thirds of Americans who file for bankruptcy, file Chapter 7.

What happens to taxes in Chapter 13?

In most cases, you cannot discharge (wipe out) tax debts in Chapter 13 bankruptcy. Instead, you repay your tax debts through the life of your Chapter 13 repayment plan, which could last either three or five years.

What is the downside to filing Chapter 13?

It’s a Long Term Commitment – Filing Chapter 13 bankruptcy requires you to make a long-term commitment to the process. Tough To Get Credit or a Mortgage for 7 Years – Other impacts include the inability to get credit cards at a good rate, and filing Chapter 13 makes it tough to get a mortgage.

Can I keep my tax refund during Chapter 13 bankruptcy?

However, in some situations, you may be able to get your tax refund excused from being included in the repayment plan. It is unlikely that a filer will be permitted to keep their tax refund during bankruptcy. All of a debtor’s disposable income goes into the repayment plan during a Chapter 13 bankruptcy.

Does Chapter 13 include tax refunds?

But in Chapter 13, your estate includes all the tax refunds you receive during your 3-5 year payment plan. You can avoid turning future refunds over to your trustee by adjusting your tax withholding so you don’t overpay your income taxes. Written by Attorney Paige Hooper . Which Tax Refunds Are Part of Your Bankruptcy Estate?

Do I have to turn over my tax refund in Chapter 13?

Whether you must turn over your tax refund will depend on your particular case. In Chapter 13, creditors are entitled to receive all extra or “disposable income,” so you should plan to give your tax return to the court-appointed Chapter 13 trustee each year to pay creditors.

What is Chapter 13 bankruptcy & how does it work?

This section of the bankruptcy law allows individuals and small business owners in financial difficulty to repay their creditors. Chapter 13 bankruptcy is only available to wage earners, the self-employed and sole proprietor businesses. Taxpayers must file all required tax returns for tax periods ending within four years of their bankruptcy filing.

Leave a Comment