Let’s say you file your bankruptcy case in August 2023, the trustee can keep you case open until April 2024 to potentially intercept your tax refund (if you do not have exemptions that can cover it).
The trustee cannot take “earned income credit” which is a tax credit given to people who meet certain criteria for their dependents. There is also a formula for how much the trustee is allowed to keep which depends on the date your case gets filed. If you file July 1st then the trustee would only be entitled to 50% of your refund less EIC. For this reason, the trustee will usually only keep cases open to get tax refunds if its later in the year vs. in January when they would barely be recovering anything.
If you have enough exemptions left, we can also exempt your tax refund for the following year. Sometimes we suggest getting your property or car appraised, since it might allow you some extra money to put towards your exemption for the tax refund.
If you are in a Chapter 13, it is required to supply your tax return each year to the trustee and turn over your tax refund. However, if you do need your tax refund to pay for a necessary item such as a medical procedure, tires, house repairs, etc. we can ask the trustee for permission to retain your refund. As long as, you provide supporting documentation, the trustee will normally allow you to keep your tax refund.
