Can You Keep Your IRS Refund If You File Chapter 13 Bankruptcy?

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During Chapter 13 bankruptcy, you commit all your disposable income to paying your creditors. Although you may not view your tax refund as disposable income, your creditors and the court-appointed bankruptcy trustee will likely view this money as theirs and attempt to seize it. Despite these circumstances, there are some legal protections that may enable you to retain some or all of your tax refund.

The Chapter 13 Plan

Upon filing your Chapter 13 bankruptcy, all debt collection efforts by your creditors are automatically stayed. You are provided an opportunity to reorganize your debts into a 3- to 5-year repayment plan overseen by a court-appointed trustee. In exchange for this debt relief, you are required to commit all of your disposable income to be paid to your creditors.

Tax Refunds

You likely receive a tax refund because you elected to have more money withheld from your paycheck than necessary to cover your estimated taxes. By over-withholding your income, you are reducing the monthly disposable income that could otherwise be given to your creditors. For this reason, many bankruptcy trustees believe you are obligated to hand over your tax refunds to them to distribute to your creditors since you failed to appropriately maximize your disposable income.

Read More: Chapter 13 Rules: How Does it Affect Tax Refunds

100 Percent Repayment

Not all creditors receive repayment of their entire outstanding debt under a Chapter 13 plan, which is why the trustee often looks for additional disposable income to seize from a tax refund. However, if your Chapter 13 bankruptcy plan commits you to repay 100 percent of your debts to your lenders without taking into account your tax refund, you will likely be able to keep your income tax refund.

Rolling Refund

If you are not able to shield your tax refund from seizure by the bankruptcy trustee, you have the option of letting the IRS keep your refund to pay toward next year's tax liability. The election to roll over your refund into next year's taxes is irreversible and the bankruptcy trustee does not have authority to overrule your choice. Therefore, if you are expecting to emerge from bankruptcy prior to filing the following year's tax return, you may be able to effectively delay receiving your refund until you emerge from bankruptcy.


The purpose of a Chapter 13 bankruptcy plan is to enable you to earn sufficient income to repay your debts. If you suffer a personal catastrophe, such as a medical emergency or major damage to your home, you may be able to convince the bankruptcy trustee to let you keep your tax refund in order to pay for these necessary expenses. To be successful in this effort, you will need to provide persuasive evidence that the circumstances are true emergencies and the expenses could not otherwise wait until you have emerged from bankruptcy.

Social Benefits

The federal government provides some tax credits to promote the social welfare of taxpayers in a manner similar to an entitlement. These credits typically include the dependent child and Earned Income Tax credits. In some jurisdictions, bankruptcy courts allow debtors to retain any portion of their tax refund resulting from these tax credits, since they are not attributable to over-withholding of disposable income.

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