How to Keep your refunds and bonuses in chapter 13

[wooisme]

Hi all,

For those of you who are just starting to file for chapter 13 and don't have a confirmed plan and if you are wondering about refunds, bonuses, vacation checks and so on. You need to pay attention to some information. Now all districts/states, etc may not let you do this but it's worth finding this out so that you could keep your money.

Make sure you have an experienced lawyer who really knows what he/she is doing. If they don't mention this to you, you should mention it. You CAN keep your bonuses and refund BUT it must be included in your plan as income AND you can keep it if you make the payments in order to keep the refund.

The way our plan is set up. We can keep any refund up to $3,000 and how that is possible is because we added a payment per month of $$250 and next to it on the plan it states on the schedule "Prorated Income Tax Refund" and we did the same with a bonus we had received, stating the same thing, the amount and "prorated bonus".

So yes there is a way to keep your refunds, bonuses, etc. but you have to pay for it to keep it.

[TiredandWeary]

It seems like that kind of defeats the purpose then? I mean an extra $250 per month is a lot in my book. But, I guess if you can afford it and are willing to incur that add'l monthly trustee payment, then keeping your refund would be a nice treat!

[wooisme]

that's very true, but it insures you can keep it. you are making payments to keep it.

[lrprn]

that's very true, but it insures you can keep it. you are making payments to keep it.

You could also take the $250/month and put it in an interest-bearing savings account. Then you can also reduce your wirthholdings so you don't get much of a refund while you pocket the extra cash you get every month instead of allowing Uncle Sam to use it interest-free for 12 months. Seems a more productive way to accomplish the same thing...

[HHM]

Yep, seems kinda of a wash to me.

[wooisme]

I'm ONLY telling you how we did it with the lawyer and what he suggested to do. after all your NOT suppose to have $250 left over to put into a savings account ...tax refunds are income! they must be reported as income...if it weren't income the trustee would not TAKE it

[woeisme]

but not all trustees take your refunds, so if you set it up like you did, and your trustee wasn't the refund-taking type, you'd be paying more than you had to. My trustee doesn't take refunds unless they are over $6500, and bonuses and overtime and such are ok, as long as they don't increase your salary by more than 10%. So my advice would be to definitely find out your trustee's practice for refunds and such before you file, and to adjust your withholdings accordingly so as to have no refund, because as you said, you're not supposed to have an extra $250 a month in your budget, if you have that much to give towards getting your rebate back every month, then something in your budget isn't honest to start with., otherwise how do you have this "extra" money before your return check ever arrives?

[woeisme]

PS, like your screen-name wooisme :-)

[larryg]

You have a regular payment and $250 of this payment goes toward your bonuses and tax refunds. If I understand this correctly. If you didn't put $250 toward refunds and bonuses the trustee would get the $250 anyway because if you have an extra $250 each month the trustee should be taking it. Am I understanding this correctly? Can an attorney just designate an amount like that? Do you actually have the $250 to pay into the plan? If the attorney included bonuses and refunds into your income when figuring your disposable income how will you have the $250 if you don't get a bonus or your refund goes down? If he didn't figure these into your income than how could he just designate this amount towards them? I would really like to know how this turns out please keep us informed.

[kiddles]

You're not keeping your refund/bonus, etc - you're paying it to the thrustee a little bit each payment, before you've gotten it, rather than paying it all at once when you get it.

[Flamingo]

If one is getting a large tax refund every year, paying extra to keep it totally defeats the purpose. You are paying extra in your plan to keep money already paid by you to the IRS or your state. One should look into changing their exemptions if a large refund (over $500 - the amount suggested by the IRS for one to review their exemptions) is a yearly thing.

Bonuses cannot always be expected. What if you pay extra into your plan to keep a bonus and then the bonus doesn't happen? Many companies in this economy have cut back and bonuses just are not happening. Would the Trustee refund that money back to you if you did not get a bonus? Or will he/she provide it to your creditors on top of that which you are already paying into the Plan?

In the situation of a bonus or a tax refund, we were able to keep a refund of sick/vacation pay from my former employer (in excess of $3,000) and two bonuses received over the course of our Plan. When we received the funds, I contacted our attorney and advised him of the receipt of the funds and the amount and also provided a list of items we despirately needed. Car tires, new computer cause ours was dying and my daughter needed it for school and homework research, etc. Each time he checked with the Trustee and we were allowed to keep the funds. Now if bonuses are large, there is less of a chance that you would be able to keep all of it but just a portion but it all depends on your trustee and your particular situation.

[curiouscat]

Can You Please Elaborate a Bit Further?

with my scenario I'm fighting to stay in a 7 and hope I'm successful. However, we have extra income that sometimes comes in, but its very spotty...If a fire breaks out in CA and OES is called, my husband goes and gets paid. Last year hardly got any money and that's how we got in this mess of BK. Anyway, 2 years ago had 20K extra!!!

What I don't understand is that if we do a 5 year Chap 13, everything is decided on by the trustee to begin with - a set amount given to the creditors and they can't come back and say they want more later. So if his extra income was confiscated does that go to pay off these creditors SOONER or do we have to pay them MORE (i.e., full value)? Sooner is not really something I object to, but paying them MORE is ridiculous. And then what happens if they step up my payments and then we don't have the extra income.

I REALLY despise the idea of some trustee snooping into my business for 5 years. I don't think I can handle it.

Also, we are REALLY going to owe in taxes this year because our house loan was in a modification program and we weren't making full payments, so when we owe back taxes AGAIN what are we going to do? We already are claiming ZERO and having extra money taken out? I just HATE the idea of a 13. What good does it do me? It certainly doesn't allow me a fresh start at all.

[debtinohio]

but not all trustees take your refunds, so if you set it up like you did, and your trustee wasn't the refund-taking type, you'd be paying more than you had to. My trustee doesn't take refunds unless they are over $6500, and bonuses and overtime and such are ok, as long as they don't increase your salary by more than 10%. So my advice would be to definitely find out your trustee's practice for refunds and such before you file, and to adjust your withholdings accordingly so as to have no refund, because as you said, you're not supposed to have an extra $250 a month in your budget, if you have that much to give towards getting your rebate back every month, then something in your budget isn't honest to start with., otherwise how do you have this "extra" money before your return check ever arrives?

I do believe we have the exact same Trustee - - my refund was $64XX.XX this year -- :-)

[SMinGA]

Not exactly how it works.

You agree to pay all DMI into the plan, to be divided among creditors. Limitation is that some creditors must be paid in full (back taxes, mortgage arrears and possibly some secured loans for example) while unsecured gets a portion of what they owe. Possibly a very small portion...

Your initial plan is based on the situation at that time. If things change, you may end up paying more or less into the plan that your original confirmation. That can change the amount to go to unsecured - though not to the point where they get more than you owed them originally.

Personally we will factor in bonuses into our plan (normal for me to get them in July & Dec) but we also will factor the expenses that my bonuses cover. Car maintenance, modest holiday spending, clothing, etc. - tend to be done here & there rather than a little each month. We will list average expenses on J for those areas, and bonus on I, but those really come out of the bonus checks.

What I don't understand is that if we do a 5 year Chap 13, everything is decided on by the trustee to begin with - a set amount given to the creditors and they can't come back and say they want more later. So if his extra income was confiscated does that go to pay off these creditors SOONER or do we have to pay them MORE (i.e., full value)?

[SMinGA]

If at all possible, perhaps hold off on filing ch. 13 - if that is your ultimate intention - and adjust withholdings to the accurate level. That way you will not owe in 2011 (payable in 2012) and if you file in January-March 2011 you can include this year's tax bill in your plan. Possibly could include this year even if you file sooner - since the debt has already been incurred - and then go ahead and fix withholding now - but need to cover that with an experienced atty.

Also, we are REALLY going to owe in taxes this year because our house loan was in a modification program and we weren't making full payments, so when we owe back taxes AGAIN what are we going to do? We already are claiming ZERO and having extra money taken out? I just HATE the idea of a 13. What good does it do me? It certainly doesn't allow me a fresh start at all.