Tax Refunds in Chapter 13
By L. Jed Berliner, Western & Central Massachusetts Bankruptcy Attorney on Sep 28, 2008 in Bankruptcy Practice and Procedure, Chapter 13 Bankruptcy
Post-filing earnings, minus reasonable living expenses, in Chapter 13 is property belonging to the creditors. This can include tax refunds.
I used to counsel my clients to decrease their withholdings, which increases net pay and reduces the tax refund. I came to realize that, by and large, my clients needed the forced savings which a tax refund provides as the only way to be able to pay for serious home or car repairs. The day-to-day demands of living on limited income was just too great to allow for savings any other way.
I’ve been successful with trustees so far with allocating 1/12 of the expected tax refund as monthly income on Schedule I, and having my clients reasonably estimate the monthly portion of all their expenses on Schedule J – including an estimate for expenses based on how the tax refunds have been spent in the past.
It sure beats not fixing a busted car or leaky roof.
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