Chapter 13 And Your Tax Refund

One of the most important aspects behind a Chapter 13 bankruptcy case is your income, which determines how much you will be required to repay as part of your debtor’s plan. Changes to your income level can influence your payment requirements, but these changes are generally considered on an individual basis.

Additional Funds

One source of additional funds that could impact your Chapter 13 repayment plan is a large tax refund. If you receive a large tax refund in a year that you are participating in Chapter13 your tax refund may be considered additional income, which could then increase the amount required for repayment or be seized altogether in a lump sum.  However, this does not mean that you will lose your entire tax refund.

The general rule is that you will be required to report the amount received in your tax refund to the bankruptcy trustee, but you may be allowed to retain the lesser of (a) $600 or (b) two months plan payments. This means that you would only be required to relinquish the excess amount of these two options. You may be eligible to keep more than this amount by requesting a Motion to Retain Tax Refunds.