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Can I keep my tax refund in Chapter 13 bankruptcy?

Whether you can keep your tax refund in Chapter 13 bankruptcy depends on several factors. As a general rule you must turn over your federal tax refunds to your chapter 13 bankruptcy plan every year you are in the bankruptcy. You may always keep your state or city refund.

If your bankruptcy plan proposes to pay all your creditors in full, you may keep your federal refund. Even if your bankruptcy plan proposes to pay less than 100% back to your creditors it is still possible to retain all or a some of your federal tax refund. This can be accomplished by either pro-rating your refund and including it as part of your monthly income, or to file a motion with the Judge to excuse your refund.

If you have proof of some extraordinary expenses (large home repair, large car repair, medical expense, etc.) you may be able to keep your refund or part of it to help pay for those expenses. It is a good idea before filing bankruptcy to alter your withholdings for federal taxes to get as close as possible to tax neutral, meaning you do not owe any taxes at the end of the year but you get little or no refund.

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