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Tax refunds and a Chapter 13 bankruptcy

Texas residents who would like to keep their income tax refund while in a Chapter 13 bankruptcy may be interested in knowing more about petitioning the court to that effect. Because it is considered disposable income, the Chapter 13 bankruptcy trustee is most likely to demand that the full tax refund be turned over for disbursement among the debtor's creditors. Dependent upon the set of circumstances surrounding the debtor's situation, however, it may be possible for that individual to petition the court to excuse one or all future tax refunds.

Debtors who file such a petition before their repayment plan is approved may have a better chance of retaining their refund. In the event that the court-ordered repayment plan is already in place, a debtor could ask the court to approve a Chapter 13 repayment plan modification in order to keep tax refund.

A petitioner might be more likely to be successful when the modification calls for a single, immediate excuse rather than when it calls for several. Reasons that might justify the debtor retaining all or any portion of the tax refund include a death in the family, urgent car repairs or other unexpected expenses.

Among its other benefits, Chapter 13 allows a debtor to stop creditor harassment by precluding any collection activities while payments are being made under the plan. It is meant for consumers who have a regular source of income and who can thus keep up with the requirements of the three- to five- year repayment plan, and an attorney can outline the other requirements.

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