Florida Bankruptcy Cases And Tax Refunds

Florida bankruptcy cases often involve the question of tax refunds. Will the trustee take the money?

Yes, the trustee will take your tax refund. It does not matter if it is a Chapter 7 or a Chapter 13 filed in Florida.

If you file a Chapter 7 case in Florida then you need to plan your bankruptcy filing before the case goes to court. Florida consumers may be able to exempt the refund in some situations. Others may need to purchase necessities or get medical work done; both can be properly explained and spent before filing.

As to Chapter 13 cases in Florida – bankruptcy cases that may last for 3-5 years – each year you need to submit your tax return to see if your income has gone up. Up enough for the trustee to require a change in your payment plan.

Tax refunds received while in a Chapter 13 are considered disposable income in the eyes of the bankruptcy judges in Florida. Those funds should be turned over to the creditors.

It may be a wise idea to consider changing your withholdings so you pay just a little bit to the IRS going forward in Chapter 13. This is because your monthly payment isn’t going to be easy. You have to work hard for the positive end result. So every penny you can keep from each paycheck is a penny that helps you stay current on your plan payments.

But generally speaking, if your income does not increase more than $7500 from one year to the next, then there should be no increase in plan payments.

You can ask trustee to keep refund, if you have a good reason. Maybe some unforeseen medical expenses have arisen? Did the car break down and needs repairs to make it through the rest of your plan payments? Refrigerator on the skids?

The trustees are very helpful when it comes to requests to keep your tax refund. But make sure you give me a copy of your tax return each year you are in chapter 13. It is hard for me to help you keep a tax refund when your income went up too much and I did not know.

If you are paying your unsecured creditors in full in a Chapter 13, then you do not have to turnover your tax refunds.

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