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Retaining Your Income Tax Refund in a Chapter 13 Bankruptcy

The tax season is upon us when most Americans can expect a personal income tax refund. If you are presently in a chapter 13 bankruptcy, you may not be rejoicing at the expectation of receiving an income tax refund because your chapter 13 plan requires that you pay the income tax refund to your chapter 13 Trustee for payment to your creditors. If you are represented by the law firm of Charles J. Schneider, P.C., you would have been advised that the payment of the income tax refund would not necessarily reduce the length of your chapter 13 plan. Most chapter 13 plans propose to pay less than a 100% dividend to unsecured creditors, therefore, the payment would only increase the dividend to your unsecured creditors and not reduce the length of your plan. You are committed to pay both the sum confirmed as well as the sum paid for the length of the plan "whichever is greater". If you are a client of the law firm of Charles J. Schneider, P.C. you almost certainly were advised that a chapter 13 plan is modifiable. The payment of the income tax refund is one of the terms which may be and is quite often modified for extraordinary purposes.

When you entered into the chapter 13 bankruptcy, it is a good bet that you were struggling under the heavy burden of debt either caused by the decrease in your income or the increase in expenses. Like most Americans, you would have been paying your debt and postponing the necessary repairs to your home or cars. Satisfying the chapter 13 bankruptcy law's requirement that you make your "best effort" to pay back your debt does not mean that the sacrifice should be unreasonable to the extent that those repairs should be further postponed. One of the prevailing concepts in bankruptcy is that the debtor receive a "fresh start". Allowing a home or car to continue to be in disrepair after filing bankruptcy does not give the debtor a "fresh start". Our clients have been successful in keeping their income tax refunds for extraordinary purposes in chapter 13 bankruptcy cases. Homes may have roof damage, chimney damage, electrical damage, window damage, ceiling damage, and sidewalk damage. Furniture may need to be replaced. Your vehicle may need major repairs. If these repairs were not forecasted in your home maintenance budget, or in your vehicle maintenance budget then it is entirely appropriate that you should contact your attorney to seek to use either a portion or all the anticipated income tax refund for these purposes in lieu of its payment to the Trustee. Income tax refunds have even been used as a down payment to replace a vehicle. We have also enabled our clients to retain income tax refunds for unexpected medical or dental bills and to cover optical or orthodontic expenses. Income tax refunds have been excused from payment to the Trustee where there have been periods of unemployment and to offset income tax liability for the other governmental entity.

To accomplish these goals, you may first want to have the income tax returns prepared to determine the amount of the refund. However, you should not file them. You certainly should not use the refund until there has been Court approval of your use of the refund. Obtain appraisals for the anticipated repairs or purchases or bring in the bills. More than one is usually preferable. In other words, evidence of the source and amount of your request will be necessary to convince your judge of the necessity of your modification. The better your evidence the more convincing your proposal will be. If presented convincingly, the request may never go before your judge. Make your appointment with your attorney and arrive with several paystubs (your spouse's as well) because the request to modify your plan may involve the filing of new I and J schedules to forecast your future income and expenses. Unfortunately, a proposal to modify your chapter 13 plan gives an opportunity for the Trustee to see if you have more disposable income to pay your creditors. Remember though, expenses may have likewise increased. Most likely the order approving your modification of the plan to keep your income tax refund will require the submission of receipts to the Trustee to prove that it was spent for the intended purpose. As experienced and certified consumer bankruptcy specialists, we are best able to determine the success of your proposal.

The legal work to put forward your proposal is usually paid from your chapter 13 plan, if approved by the court. It does not usually involve either direct payment from you to us or an increase in your plan payments. We are known to think out of the box in achieving the goal of retaining your income tax refund. If you are hesitant about filing for a chapter 13 bankruptcy because you have heard rumors that you would have to surrender future income tax refunds, it is best to talk to the professionals certified and specializing in consumer bankruptcy at the law firm of Charles J. Schneider, P.C. who can best advise you. We are determined to see you obtain the "fresh start" contemplated in the bankruptcy code.

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    Posted by MaryDecember 11, 2015

    "I am overwhelmed by your response to my call, even 10 years after my bankruptcy was discharged. You have more knowledge and expertise than I could have imagined. Because of you, my fears have been put to rest. For that, I'm so very grateful. Thank you many times over. "

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    Posted by ClientOctober 26, 2010

    "... I was extremely impressed with Charles' understanding of the bankruptcy laws to the extent that I felt certain that my best interests were always at the forefront. "

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    Posted by MarleneJanuary 8, 2014

    He helped me thru my 1st bankruptcy and now the second. I had no idea what to expect , but they kept me informed and answered all my questions. Mr. Schneider is the most experienced and knowledgeable lawyer I have ever met. If you have to file call this attorney first!

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