Tennessee residents who have chosen to reorganize and repay their debt through a Chapter 13 bankruptcy filing may be interested in knowing whether there are any conditions under which they might be able to keep their annual income tax refund. Tax refunds are considered disposable income, and in Chapter 13, any disposable income earned by the debtor must be turned over to the bankruptcy trustee for distribution among the creditors. Under some conditions and with proper planning, however, the debtor may be able to retain at least of portion of these funds for personal use.
Individuals in Chapter 13 generally earn more than the median income in their state of residence, and income earned in excess of what is needed to provide for their basic needs and living expenses is turned over to settle their debts under a court-approved repayment plan. Debtors who want to keep their tax refund while they work their way out of their bankruptcy may have the best chance of doing so if they petition the court to this effect before their repayment plan is approved.
In the event that the repayment plan is already in place, the debtor can seek a modification to keep the refund. A one-time modification is more likely to be approved when the debtor presents at least one good reason to justify retention of the funds, such as unexpected household or medical expenses.
Tennessee residents who find themselves wanting to modify their Chapter 13 plan may find it beneficial to seek help from an attorney who has experience in bankruptcy law. After reviewing a client’s financial situation, the attorney could prepare the appropriate paperwork and present it to the trustee.