During a Chapter 13 bankruptcy, you commit all of your disposable income to pay your creditors. Although you may not see your tax refund as disposable income. Your creditors and the court-appointed bankruptcy trustee are likely to view this money as their own and will try to do so confiscate. Despite these circumstances, there are a number of legal protections that may allow you to keep part or all of your tax refund. In this article we will discuss the question, ‘Can I keep my tax refund after filing chapter 13?
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When your Chapter 13 bankruptcy is filed all debt collection efforts automatically remain with your creditors. You have the opportunity to reorganize your debts into a 3 to 5 year repayment plan supervised by a court appointed administrator. As an alternative to this debt relief you are asked to guarantee payment of all your disposable income to your creditors.
You are likely to get a tax refund because you decided to withhold more money from your paycheck than you need to cover your estimated taxes. For this reason many bankruptcy trustees believe that you have failed to adequately maximize. Your disposable income for which you have to pay your tax refunds.
100 percent refund
Not all creditors receive a refund of their total outstanding debt under a Chapter 13 plan. Which is why the administrator often seeks additional disposable income to obtain from a tax refund. However, if your Chapter 13 bankruptcy plan commits you to pay 100 percent of your debt to your lenders regardless of your tax refund. You may be able to pay your tax refund arrested.
If you can’t protect your tax refund from a seizure by the bankruptcy administrator. You have the option of allowing the IRS to withhold your refund for next year’s tax liability. The choice to transfer your refund to next year’s taxes cannot be revoked. And the bankruptcy trustee has no authority to override your choice. Therefore if you expect to get out of bankruptcy before filing your next year’s tax return. You can delay your refund until you get out of bankruptcy.
The purpose of a Chapter 13 bankruptcy plan is to allow you to earn enough income to pay off your debts. If you experience a personal disaster such as a medical emergency or major damage to your home. You can convince the bankruptcy trustee to allow you to keep your tax refund to cover these necessary expenses. To be successful in this endeavor you will need to provide compelling evidence that the circumstances are genuine. And that the costs cannot wait until you emerge from bankruptcy.
The federal government provides some tax credits to promote the social welfare of taxpayers in a similar way to rights. These credits generally include dependent tax credits and earned income tax. In some jurisdictions bankruptcy courts allow debtors to withhold any portion of their tax refund arising from these tax credits. As they are not attributable to excessive withholding of disposable income.
How to appeal for tax refund
The easiest way to request a tax refund is to show that you need to use the refund for your plan to work. This does not mean that you cannot seek relief. If you have a problem later in the plan, you can modify it by asking the court for a certain refund because your reasonable costs have increased. However, this will not work if the administrator can demonstrate that the reimbursement is not necessary to cover the costs.
If you are considering Chapter 13 to address your financial issues but are concerned about the effect on your tax refund, please contact one of your closest tax lawyers for a free confidential consultation with a licensed and experienced attorneys.
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