Chapter 13
All disposable income (any income not used for reasonable and necessary expenses) is required to be paid into your Chapter 13 payment plan. And you guessed it, large tax returns are considered disposable income by the court. The local chapter 13 trustees generally like your tax refund to be less than $2,000. There are a few ways to protect your refund. You can treat any refund you’ve received prior to filing as cash in the bank and use normal exemptions to protect it. Another option is to include language in your plan which suggests that your refund is necessary to make your plan work. Chapter 13 bankruptcies are complicated, so I would recommend consulting a Fairfield bankruptcy attorney.
Chapter 7
Like a Chapter 13, any refunds received prior to filing a Chapter 7 can be treated as cash in the bank and protected using exemptions. A tax refund that has not yet been received also needs to be exempted. If you’ve already exhausted your exemptions, then you can spend it on necessary expenses, such as food, clothing, and medical care. Depending on how far in advance you’re able to plan, you can also simply adjust your withholding to minimize your refund. Please be mindful that the government will take your refund to satisfy any tax debt from previous tax years.
Having successfully helped well over a thousand clients navigate Chapter 7 and 13 bankruptcy, we would be happy to help anyone looking into Stockton or Modesto bankruptcy. Feel free to contact us to schedule your free consultation.