A lot of times, I get questions from people who are thinking of filing bankruptcy but they’re worried about whether they can keep their future income tax refunds when they file Chapter 13. Chapter 13 cases generally lasts three to five years. Most of the requirements are that you cannot keep your income tax refund while you’re in the Chapter 13 case. However, there are several exceptions to this rule. For example, if you allocate your future tax refund to the IRS for future tax liability, then the Chapter 13 trustee cannot object to you keeping that income tax return for the purpose of paying the IRS.
Sometimes, if your situation has changed and you’ve incurred a lot more expenses, an application can be done to the bankruptcy court and to the Chapter 13 trustee that asks for permission really for you to keep that future income tax refund. If you’ve had a car break down, or you’ve had another medical emergency in the family or something of that nature, then a lot of times you will be allowed to keep that income tax return so long as an application and the hearing has actually been held.
The reason that the Chapter 13 trustees generally will not allow you to keep your income tax refund is because the actual refund itself is considered to be what we call disposable income. All of your disposable income in any Chapter 13 plan is required by operation of law to be paid to the Chapter 13 trustee. I know this sounds really super complicated or it may be unfamiliar territory for you but if you have any questions about whether you can keep or you’ll be entitled to keep your income tax refund in a Chapter 13 case, please call me at 770-792-1000
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