A tax refund is money the government owes you because more tax was paid or withheld than you ultimately owed. In a Chapter 13 case, what happens to that refund depends on the plan you filed and the terms of the confirmed plan.
When You Can Keep the Entire Refund
If your Chapter 13 plan pays all allowed creditor claims in full, you generally keep the entire tax refund. The confirmed plan controls, so your lawyer should review its exact terms with you.
When Part of the Refund Goes to Creditors
If your plan pays only part of your unsecured debt, the standard treatment in the Northern District of Georgia is that you keep the first $2,000 of your federal income tax refunds for each applicable year. The amount over $2,000 must be paid to the Chapter 13 trustee within 30 days after you receive it, unless the Bankruptcy Court orders otherwise. The trustee then distributes those funds through the plan.
You must also provide the trustee with a copy of each applicable federal income tax return within 30 days after filing the return.
Can You Ask to Keep More Than $2,000?
Possibly. If you have a specific and necessary expense, your lawyer may ask the Bankruptcy Court for permission to retain funds that would otherwise be paid to the trustee. Approval is not automatic, and documentation may be required.
The plan and any later court orders control the result in each case. Please call us at 770-683-3303 to discuss how your Chapter 13 plan treats tax refunds.
