Bankruptcy: Can I keep my tax refund?

December 29, 2022

Bankruptcy - Can I keep my Tax Refund?

For many of our clients, the annual tax refund they receive is a household necessity in order to pay for vehicle repairs, back rent, medical bills or child expenses. For that reason, we are often asked “will the court take my tax refund?”

Chapter 7

In a Chapter 7, you will be able to keep your tax refund as long as you have enough bankruptcy “wildcard” exemptions to do so.  As of today (12/29/2022), the Wildcard Exemption is maxed at $13,100. Meaning, an individual may keep up to $13,100 of their tax refund, or a couple may keep $26,200 … so as long as you are not using your wild card exemption for other assets.

Chapter 13

Whether you are able to keep you tax refund in a Chapter 13 will come down to your budget. Annually you may submit a request to retain your tax refund, and with that you will need to show whether your income has gone up or down, as well as what unexpected expenses you had. So for example, if you want to retain your tax refund to pay your utility bills, the trustee may reject your request if your budget already accounting for those bills. However, if you need to retain your tax refund to replace the brake pads, rotors and calipers on your vehicle, there is a higher likelihood that would be approved.

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