What Happens to Tax Refunds in Chapter 13?

by DeLadurantey Law Office, LLC on December 3, 2014

Taxes2When you file an individual Chapter 13 bankruptcy, you are required to submit a repayment plan for approval by the court. Your plan is based upon your income and the amount of “disposable income” you have to repay creditors. If you are entitled to receive a tax refund, it can be considered disposable income that should be included in your plan to pay your debt. There are some situations, however, where you may be allowed to use your refund to pay for expenses outside your plan.

How do you know if you can keep your tax refund? The Chapter 13 trustee will determine whether your refund is disposable income that should be included in your Chapter 13 plan. There are a few factors that may be considered in determining whether you can keep your refund.

If the tax refund will be used for a necessary need that your current budget does not allow for, you may be able to file a motion to modify your plan and request the tax refund be excused from being included in your plan. In other words, you can use the refund for another need instead of to pay your creditors. This may also permit you to excuse future refunds received while your bankruptcy case is pending.

What type of “necessary need” will excuse your tax refund from your Chapter 13 plan? There are a wide variety of reasons that may convince the trustee that you need your tax refund, but if you can demonstrate it is needed for you to continue to meet the obligations set forth in your repayment plan, it can be convincing. For example, using your tax refund to repair your vehicle or to obtain medical care are valid reasons for you to keep your tax refund.

If you are expecting a tax refund and you are considering filing a Chapter 13 case, it is important to consult with us regarding the best strategy for handling both.

If you would like a down-to-earth approach and a lawyer who will listen carefully to all your questions and concern, call DeLadurantey Law Office, LLC,at (414) 377-0518. We serve clients primarily in the areas of student loan law, Chapter 7 and Chapter 13 bankruptcies, debt negotiations and defending foreclosure actions. If you live in the area of Milwaukee, Wisconsin, call us for the debt relief assistance you need. Visit our web site and like us on Facebook.


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