Chapter 13 bankruptcy is a structured repayment plan approved by the court that helps debtors
make affordable monthly payments to creditors. The plan is based on income
ability of the debtor with disposable income being another factor in how
payments to creditors are established. A tax refund may be considered
disposable income that could be used to pay creditors, but in some cases
you may be able to keep your refund.
In Chapter 13 the trustee considers a tax refund as disposable income,
so it may be subject to be included in your repayment plan. In most cases
a tax refund is not included in a repayment plan when it is created and
disposable income includes monies left over after essential payments and
expenses are completed. There are a few things to consider that may help
you keep your refund.
If you have a necessary need for the tax refund in where your current budget
makes it impossible for you to do on your own, you may be able file a
plan modification with your trustee. This is where you work to excuse
the refund. Meaning, you can have your refund excused to be placed toward
another need. This also allows you to excuse future refunds during the
course of the bankruptcy. You may need to specify the amount of the refund
and why you need the money.
In some cases debtors need their refund for essential needs in order to
continue to meet obligations stated in their repayment plan. Repairs to
your vehicle or medical needs are prime examples for excusing tax refunds.
It is best to review your concerns with your trustee prior to receiving