Tax Refunds in Chapter 13

28 Sep Tax Refunds in Chapter 13

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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L. Jed Berliner practices exclusively in consumer bankruptcy, foreclosure defense, and related consumer protection litigation such as credit card defenses and suing debt collectors. He established his Springfield, MA practice in 1988. Attorney Berliner is a regular and active contributor to the Bankruptcy Law Network, the Bankruptcy Roundtable, and the National Association of Consumer Bankruptcy Attorneys, three specialized consumer bankruptcy forums on the Internet, and is an informal mentor to regional practitioners. He is recognized by his peers as an expert in consumer bankruptcy issues. He thoroughly enjoys being rated "excellent" in his client surveys.

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