Keep Tax Refund

If you are like many people who have their taxes automatically deducted from their paycheck, then receiving a tax refund may be something that you have come to rely upon.  If you are considering your debt relief options, it is important that select the right option that allows you to keep your refund.

Can I Keep My Tax Refund In Bankruptcy?

When you file bankruptcy, you have to disclose to the Court all of your assets, including any anticipated Federal or State tax refunds, which are treated as just another asset in your case.  If you are expecting a refund, you need to know,  “can I keep my tax refund if I file bankruptcy?” The answer to this question will depend partly upon whether you are filing under Chapter 7 or Chapter 13.

Refund in a Chapter 7 Case

When you file under Chapter 7, your attorney will first examine all of your assets, and then apply your exemptions to determine whether your tax refund is covered by your applicable exemptions.  If your refund is covered by your applicable exemptions, then you can keep it.  If your refund is not covered by your exemptions, then you will have to give it to the trustee, who will distribute the funds to your creditors.

Refund in a Chapter 13 Case

When you file Chapter 13 bankruptcy, your future tax refunds (for future years) are treated as your future income.  In determining how much income you earn for purposes of funding your repayment plan.  This is one important reason why in Chapter 13 cases you need a skillful lawyer who will be able to anticipate the appropriate amount of refund you are to receive and have your income and expenses reflect the refund appropriately.  Otherwise, you may receive an unwelcome surprise when the trustee objects to your case and demands that you give the trustee all of your tax refunds for the full 5-year duration of your court approved repayment plan.


So in doing your planning before your case is filed, be sure to discuss with your lawyer any anticipated tax refunds.  Whether the court and trustee will allow you to keep your tax refund in bankruptcy can mean the different between whether you are able to pay for the necessities of life, such as food and shelter for your family.  Make sure that your attorney fully considers your tax refunds and properly accounts for them in the process of planning your Chapter 7 or 13 filing.