Tax Refunds in Ohio Bankruptcies

Bankruptcy Attorney Dayton, Oh

Ohio bankruptcy attorneys are often asked if consumers will be able to keep their Tax refunds in Ohio bankruptcies. Because Chapter 7 bankruptcy cases are relatively short, keeping tax refunds typically doesn’t apply. On the other hand, a Chapter 13 bankruptcy in Dayton or any other Ohio city will usually span three to five years. Because changes in income must be reported to the Bankruptcy trustee overseeing your case, in most cases, income tax refunds are treated as disposable income which is used to pay back creditors. However, there may be some occasions where you can keep your tax refund if you are in the middle of your Chapter 13 repayment plan.

How Ohio Treats Tax Refunds in Bankruptcy

When you enter into a Chapter 13 repayment plan, you outline your monthly expenses and income. Any money that you earn within the life of the plan that doesn’t go towards necessities such as mortgage/rent, food, transportation, and other living expenses is considered disposable income. Each month you make a payment to the Ohio bankruptcy trustee assigned to your case who then splits it evenly among the creditors listed in your bankruptcy petition. If you get an unexpected (or expected) payment such as a tax refund, lawsuit damage payout, or even lottery winnings, you must report this change to the trustee. Unless you can prove that you absolutely have to have the money for unforeseen expenses, the money must be turned over to the trustee to pay back your creditors.

Excusing a Tax Refund

If you are expecting a tax refund that you hope to keep, you should contact your bankruptcy attorney once you file your income taxes for the year. In order to keep your income tax refund during your Chapter 13 plan, you must file a separate modification for each tax refund. Depending on how long your plan lasts, this could mean that you have to file 4-5 modifications. The motion to modify your Chapter 13 bankruptcy plan will need to include the amount of your tax refund and why you need the money.

Common Reasons for Tax Refund Excuses

In order to excuse a tax refund under your Chapter 13 bankruptcy plan, you’ll have to have a good reason to present to the Ohio Bankruptcy Court. Reasons that may convince the court that you need to excuse your tax refund could include an emergency home or auto repair, unexpected medical or dental cost, or you need to pay for funeral expenses.

Consult a Bankruptcy Lawyer for Help

Every person’s need for keeping a tax return during a Chapter 13 bankruptcy is different. Your Dayton, OH bankruptcy attorney can help you with drafting a plan to excuse your tax refund within your confirmed Chapter 13 bankruptcy plan.

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