Debt can be debilitating, creating an immense amount of stress that may affect all aspects of your life, as well as those of your loved ones.  If you take the step to put an end to the bleeding, and choose to eliminate your debt with Chapter 13 bankruptcy, it is essential that you are aware of what may happen if you get a tax refund.  Because the purpose of Chapter 13 bankruptcy is to eliminate debt, any income you receive may go to your creditors depending on the particular terms of your Chapter 13 repayment plan.

Can I Keep My Tax Refund?

The answer to this question is that it depends.  In order to keep any portion of a tax refund while in the bankruptcy process, the bankruptcy court must approve your request.  If you have not yet filed for bankruptcy, you can request as part of your repayment plan that you get to keep some or all of your tax refund.  However, there must be a valid reason for wishing to keep the extra income, and this is something that would typically be a one-time thing, and not a repeated occurrence where you get to keep your tax refund every year during your bankruptcy.  A bankruptcy court may grant your request to keep some or all of your tax refund for reasons including, but not limited to, the following:

  • Job loss or decrease in income;
  • Medical expenses;
  • Car or home repairs; and
  • Childcare needs.

There may be situations where you can keep some or all of your tax refund each year during your bankruptcy, but this is not an ordinary practice.  If your income is at such a level that any income you get is essential to make ends meet, a bankruptcy court may exempt your tax refund from your Chapter 13 repayment plan.

Why You Should Speak with an Attorney

It is best to address potential issues prior to actually filing for bankruptcy.  If you answer those lingering questions up front, you can plan for them as part of your bankruptcy.  If you know that you will be receiving a tax refund, and you believe you will need to keep that extra income, you can request that this income be exempted from your bankruptcy, but must do so when filing your bankruptcy petition.  If you have already filed for bankruptcy, and wish to adjust your repayment plan, you will have to seek modification of your repayment plan, and get the court’s approval.

Given that there is so much at stake, it is a good idea to work alongside an attorney to address unexpected issues that may pop up as part of your bankruptcy proceeding.  Whether you have already filed for bankruptcy, or plan to do so in the near future, you should discuss the matter with an attorney who can help you tackle an issue like tax refunds that are bound to come up from time to time.

Contact Kansas City Bankruptcy Attorney Douglas Breyfogle Today to Schedule a Free Consultation

Chapter 13 bankruptcy has enabled millions of consumers across the country to eliminate their debt in a feasible and fair manner.  There are always unique circumstances that affect each consumer’s bankruptcy.  When it comes to tax refunds, any consumer would love to keep as much of the refund as possible, instead of being required to turn over that money to unpaid creditors.  Whether you have already filed for Chapter 13 bankruptcy, or are simply considering whether to go down that route, it is important that you consider speaking with a Kansas City Bankruptcy Attorney as soon as possible.  The information you find online may be accurate and credible, but actually speaking with a legal professional will allow you to have a better understanding of your financial situation.  Kansas City Bankruptcy Attorney Douglas Breyfogle has been assisting consumers across the Kansas City area for more than twenty years, dedicating his career to helping his clients overcome debt in the most efficient way possible.  If you would like to speak with Mr. Breyfogle about your financial situation, contact our office today by calling (913) 742-8700 to schedule your free consultation.