While in a Chapter 13, you are making monthly payments to a bankruptcy trustee. You pay your creditors whatever you can afford over three to five years (three years for lower income earners, five years for higher wage earners). You are required to commit your disposable income to the repayment plan during the repayment period. You are also required to pay as much to unsecured creditors as they would receive in a Chapter 7 bankruptcy.
Unfortunately, an expected income tax refund is property of the bankruptcy estate. Many filers are able to protect all or a portion of their income tax refunds by applying their bankruptcy exemptions to the expected refund. Generally, after using all of your available exemptions, the remaining unprotected amount is often little or nothing.
If you cannot protect your tax refund with exemptions, you are required to pay the non-exempt amount in your monthly plan payments. This is because your unsecured creditors would get this money if you filed a Chapter 7 bankruptcy.
Working closely with my office will maximize the amount of money you get to keep.
If you are expecting a large income tax refund, but need to file a Chapter 13 bankruptcy case, contact the NJ bankruptcy law expert, Robert Manchel, at (866) 503-5655 to discuss your options for bankruptcy protection. We can explain how the federal laws can protect your assets and discharge your debts.