Huntsville, AL asked in Bankruptcy and Tax Law for Alabama

Q: Do I have to give the trustee my tax refund in chapter 13 bankruptcy? Located in Alabama.

Do I have to give the trustee my tax refund in chapter 13 bankruptcy? I called my attorney and spoke to a Lady in the office and she said that the trustee doesn’t take tax refunds anymore. Wasn’t able to speak with my attorney personally.

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2 Lawyer Answers
Lloyd  Nolan
Lloyd Nolan

A: I do not practice in Alabama, so that question would be dependent on the local bankruptcy rules that govern your case. In the Eastern District of Missouri, where I practice, the local rules require that debtors turn over their tax refunds (over a specific allowable amount) to the Chapter 13 Trustee and that these amounts will be added to the plan base (the overall sum of payments). This is consistent with the Bankruptcy Code in that a Debtor is to exercise his or her "best efforts" to pay back creditors over the life of their Chapter 13 Plan. In other words, it would not be consistent with the best efforts criteria to allow debtors to keep large or excessive tax refunds while simultaneously giving creditors less than full or significant payment. If you are unable to speak with your attorney, (this is troublesome in itself), you should get specific direction and instructions from the office of you Chapter 13 Trustee. You should read your Chapter 13 plan carefully as your duties and obligations under the plan should be set forth in that document.

Timothy Denison agrees with this answer

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Kevin M Ryan
Kevin M Ryan
  • Bankruptcy Lawyer
  • Loxley, AL
  • Licensed in Alabama

A: The Bankruptcy Code DOES allow for the Chapter 13 Trustee in any district to inquire as to the amount of future income received by the Debtor, from all sources. Some Trustees send out an annual Questionnaire to every active bankruptcy Debtor upon which a disclosure under oath must be made as to all sources of income the past year, along with a copy of the Debtor's tax return. This usually does not happen in districts with a high number of filings, because this is an administrative nightmare for the Trustee's office, the Debtor Attorneys and the Debtors.

In the Southern District of Alabama the Chapter 13 Trustee does not intercept future tax returns or require the Debtor to report annually on any tax return funds. Another important caveat is that Earned Income and Child Tax Credits are exempt under federal and state law, so they cannot be taken by a Trustee regardless of when they are received, either before or after the filing of the Bankruptcy case.

Timothy Denison agrees with this answer

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