What Do I Do With Tax Refunds During My Chapter 13?

What happens to your tax refunds during the life of your Chapter 13 in the Western District of Missouri? Good question. As of two weeks ago the rules have changed. Previously you could keep the first $1,000 without scrutiny or question. Any amount between $1,001 and $2,500 you would send a letter to the Trustee and then he would decide if you could keep that amount or not. Basically, the expenses had to be reasonable and necessary and our Trustee has always had been reasonable in these requests. Anything above and beyond $2,500 we would have to Motion the Court and any creditor could weigh in.

Now the rule is the following:

1. Pre-BAPCPA (Pre October 17, 2005 filings) cases that have run less than 36 months you must Motion the Court in order to keep the refund.

2. Pre-BAPCPA cases that have run more than 36 months you are okay to keep the tax refunds.

3. BAPCPA (Post and including October 17, 2005 filings)cases that are above median income then it is okay to keep your refunds.

4. BAPCPA cases that are below median income you must motion the Court to keep your refunds.

Keep in mind these rules are only valid as of today, February 25, 2008 and only valid for the Western District of Missouri. The local rules of practice and interpretation of law truly changes on a weekly basis. It is critical that no matter where you are in the country that you keep in touch with your attorney because the bankruptcy law is far from being settled or stable.

Written by Rachel Lynn Foley.