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What happens if i dont turn over tax refund to trustee during chapter 13 payment plan?

San Diego, CA |

Last year I didn't turn over my state tax refund because i needed it to help pay for property tax. This year it looks like I'll have to do the same. Will this get my case dismissed or will they notify me that I owe them the refund? I was hoping to pay it back within 6 or 7 months. How often does the trustee check on the status of tax refunds? Do you think this will cause me problems?

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Attorney answers 3


It will be up to the trustee when to act, but ultimately, you are stealing money that no longer belongs to you. Your chapter 13 could be dismissed at any time. The Trustee's staff checks on the status of payments, including tax refunds, each and every month, so don't think you are pulling one over on them.

The decision to pursue you to collect the missing tax money may come at the end of your Plan, when you have the most to lose by having your case thrown out of court.

Hope this perspective helps!


I can't give you a simple answer. One question: was the tax refund related to a tax year before you filed chapter 13? If so, California law may allow you to claim it exempt which means the trustee is not entitled to it. If the tax refund is for a year after you filed then the trustee might claim it. The policy and procedure for tax refunds varies from court to court. For example, in Oakland the trustee does not take tax refunds (or even ask about them) as long as the plan payments are made. A local lawyer should know the San Diego method.

Law Office of Michael J. Primus We are a debt relief agency and help people file for bankruptcy under the bankruptcy laws. We have offices in California only.


First, I agree that you must speak with your attorney on this issue as all Chapter 13 Trustee's have unique "policies" that you may not find written anywhere and do not learn unless you practice in front of them on a regular basis. The issue, on it's face, is not a good one. I assume the trustee has Ordered for these refunds to come into your plan. If so, this would be in direct violation of a court order and would likely end with your case being dismissed. The best way to avoid having issues would be to file some "motion to retain" the proceeds with valid reasons as to what, when, why, and how you intend to use these funds.

Any answers provided do not constitute legal advice and in no way creates an attorney-client relationship. All information provided in responses is for informational purposes only.