Tax Withholdings, Refunds and Monthly Payments

[spearmint]

I am about to file Ch13. My income has dropped $20K from last year. I am now strapped for cash and to get by I increased my withholdings in January. Now I am wondering if that was wise because I raised my income slightly. I own my own home (well the bank and I own it) so I justified it because of the refund due to high mortgage interest.

If I file Ch13 in the next few weeks, should I lower my withholdings first, back down to 1 (single)?

I've also read that the trustee can take your tax refunds. Could I raise the withholdings after the filing so that I get the refund in my pay rather than in lump sum next April so the trustee doesn't get it?

[Flamingo]

I did the same thing during the year prior to our filing as we also had an extreme drop in income (70%) due to a large layoff by my husband's employer. I increased it from zero to 3 and left it at that until we consulted with our attorney. What may happen to you with increasing your exemptions is that you may end up owing taxes in the next tax year after you change if you itemize so be careful. I eventually reduced it to claiming one in order to avoid owing a possible large amount. Check with your attorney as to what to do in your situation so that it ends up benefiting you.

It might be hard to juggle your exemptions and taxes during a Chapter 13 because you may not have enough to itemize unless you have a lot of mortgage interest. It may take you a year or so to fine tune it so you don't end up owing or getting a lot back.

As to tax refunds, that is all district related so ask your attorney if in the event you do receive a tax refund, what should you do? Get instructions. Also find out if you will need to provide your tax returns to your trustee each year. We had to provide ours each year within five days after filing with the state and IRS.

Best of luck to you in your Plan.