Q: My husband and I are filing chapter 13, will we be able to keep our tax refund? We are in Alabama, and have 4 children.
A: You can protect some or all of your tax refund, depending on your federal or state exemptions.
A: If you owe the IRS for a prior year(s)' taxes, the IRS can offset your current post-bankruptcy filing tax return even though you are in a Chapter 13. Once they offset your tax return, they are required to amend their Proof of Claim in the Ch 13 case to lower the amount owed, based on the amount offset from your current tax return and applied to the prior year. If you do not have any prior year(s)' taxes due, it is possible that a child support agency can offset your tax return if you fall behind on current child support or spousal support ( "alimony") after the Chapter 13 case is filed. Other than those issues, in some Districts, the Chapter 13 can require you to turn over a portion of your income tax return ( Earned Income Credit is exempt in all cases) to apply to pay down your Chapter 13 Plan. Currently in the Southern District of Alabama ( Mobile AL), the Trustee does not demand a turnover of tax return funds on the basis that it is "ongoing future income" as some other Districts do .
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