Chapter 13 and Income Tax Refund Questions

[FARLEYDTR]

Hello everyone. I will try and make this short and to the point. I need some information.
We are a married couple with 4 children. Hubby works. I am a homemaker. He claims married and 10 for deductions with his employer (could be married and 12...i forget which) anyway...we are due a refund from both federal and state this year primarily from the child tax credit and EIC and Making Work Pay Credit. We filed for chapter 13 in 2010 and are required to turn over our income tax returns to our Trustee here in Michigan.

My Question is this: How can we keep our refund? We are desperate need of the refund to pay our utilities which are on shut off notices. If we could get caught up we would be ok beyond that point. Our attorney is suggesting that we get estimates for dental work/surgeries/braces,etc that our family of 6 need along with any other medical expenses that we can get estimates for. He also suggests us getting an estimate for our vehicle repairs that are needing done. He says to get enough estimates to where they are well beyond our amount of refund expected in case the judge or trustee decides to knock down some of the expenses for some reason.

Why can't we use our shut off notices with this too? He seems to basically say that we cannot do this. Why? I just do not understand the reasoning of allowing us to keep our money for dental work but not allowing us to keep it to maintain heat and electricity and water,etc. Seems illogical to me. He says if we suggest keeping the refund for our Electric Bill that we would need to supply the Trustee with 2-3 recent paystubs to show what the entire household income is at present time and although possible we would prefer not to go in this direction with the Trustee just yet, because it would be more difficult.
Difficult for whom? Us or Him? I mean is he just saying this to avoid more leg work on his end?
Is he being straight forward with us on this issue?

We are in BK for 5 yrs unfortunately and it irks me to no end that they can keep our tax return seeing as we usually get around 4-5 grand back each year. We have our deductions high. What more would you suggest doing to keep $ in our pockets and not the Trustees?

We basically struggle to keep up with the basics so any money in our pocket is a need and not a want. We're not out buying pricey things. We just are keeping our roof over our head and food in our stomachs,etc.

Anyone with experience with this that can help I'd appreciate it.
Also: If need be I will designate my taxes toward our 2008 Repayment of First Time Home Buyer Credit. I just would like to use it towards utilities if at all possible.

[lolly78]

Is your budget working for you? Has there been a reduction in income? I would think that if your utilities are in danger of being shutoff and if that information is provided to the trustee, that the trustee would want see all your income and expenses to find out why you're not able to meet your obligations. (just my opinion, I'm sure the experts will weigh in)

That's really a shame that they take your tax return, I don't think they do that here in IL.

[justbaby]

That's really the crappy part of being in Ch 13. When you file, you submit a budget to the trustee that you are supposed to follow. For me, my budget for utilities was $250/month, well our bill for December and January were both double due to very cold weather and snow. So that of course is a way to get "off budget". Fortunately for me, my trustee doesn't ask for my refund but I see how that could be very disappointing. Keep your head up and listen to your atty, that's what you pay him for...

[momofthree]

Either your budget is unrealistic, or you haven't adjusted your standards of living down to your income. Can you amend your schedules to reflect accurate expenses, or do you have a minimum amount that you have to pay in? What are you hoping to accomplish with your ch.13?

As far as your w4, if you never owe taxes (as in, you always get back 100% of what is deducted from your check) then your husband can go exempt so that no taxes are taken out of his paycheck. This is what we do. Keep in mind that some districts do not allow you to adjust your withholdings after filing, so you need to check with your attorney before any changes are made...

[LadyInTheRed]

Either your budget is unrealistic, or you haven't adjusted your standards of living down to your income.

This is why your attorney doesn't think you can keep your refund simply by saying you need to pay past-due utility bills. Your plan payment should have allowed for your average monthly utility bills. From the trustee's standpoint, if you don't have money to pay your utility bills, it is because you have been spending money budgeted for utlities on something else or something has changed which would require a modification. Your plan also deducted from income the taxes that are withheld from your husband's paycheck. If you get a refund, then that is disposable income that should go to creditors. If you actually need the refund to pay what should be regular expenses, then what you need is a plan modification, which requires you to show all of your current income and expenses just like you did in the beginning. If, on the other hand, you have unexpected expenses like medical and dental treatments, that could be the basis to keep the refunds for those items. The problem with using the medical expenses as the reason you need the refund and then spending it on utilities is that when those delayed medical treatments become emergencies, it'll be hard to go to the trustee and ask to keep another refund.

[papie]

Your lawyer is telling you to get quotes for medical care and car care because if you're staying in the Chapter 13 budget that was set when you filed, your utilities should not be getting shut off.

You need to 1.) modify your plan so you can pay your monthly bills or 2.) modify your monthly expenses so you can pay your monthly bills. If you simply tell the trustee that you want to keep your tax refund to pay your expenses he's going to want to know why you aren't following the original budget that was set forth in your plan.

I don't think your lawyer is doing anything wrong.

There really isn't anything you can do to keep more money in your pocket and away from the trustee. You could ask your lawyer if you would be able to modify your plan, but there's a pretty good chance he/she already has it as low as they can get it. It's worth a shot, though.

Other than that, if you don't already track your expenses to see where all your money is going, it may be a good time to start.

[newbie2]

I'm in Michigan also, and we are nearing the end of our 5 year plan. I'll try to answer your questions from the trustee point of view since we've been there, done that (so to speak)..

1) You can't keep the tax refund unless you petition to keep it for a very good reason (auto repairs exceeding the budgeted amount you have each month, major home repair that exceeds your budgeted amount, etc.) Also, it states on our confirmation order that all income tax refunds must be sent to the trustee. Does yours state this also? Did you understand when you filed for the Chapter 13 that this would take place?

2) If you are behind on your utility payments to the point that you are receiving shut off notices then one of two things are taking place: Either you weren't given an adequate utility allowance in your budgeted plan OR you are spending utility expense money in other areas. Utilities need to be paid in full each month. Our utility allowance was generous at the time, now with utility costs haven risen dramatically since we started our plan we have difficulty also, but they get paid when the bill comes in no matter what...

3) The difficulty your attorney is talking about is having to go to your trustee and ask for your plan to be amended this early in to things. It throws a red flag up to the trustee that your plan is not workable and either you aren't budgeting properly OR your plan wasn't workable from the start.

4) Your First Time Home Buyer tax credit that is an expense (paid back in yearly increments to the IRS) should have been listed as an expense from the beginning of your plan. Did you tell your attorney about it when you filed? Is it listed as an expense?

Many MANY people fall in to the "I will pay for it with my income tax refund" line of thinking and don't budget monthly for expenses. Now you have to learn to live without that refund, as the trustee is going to want it each and every year unless you have a good reason to petition to keep it.

One thing I want to advise strongly is this: Call your attorney and make an appointment for a face to face meeting. Bring a list of your expenses over the last 2-3 months, as well as your paystubs. Your plan may need to be amended in order for it to succeed. Something went wrong somewhere if you cannot pay your utility bills and are receiving shut off notices, as well as having to repay the IRS that tax credit.

[ABC]

you should be claiming 99 or exempt so you Zero out vs get a refund.

[newbie2]

you should be claiming 99 or exempt so you Zero out vs get a refund.

They cannot do this now. In Michigan we are NOT allowed to change withholdings during the life of the plan.

[chicagoannie]

Farley - you live in Michigan? I thought, just as in IL, that gas (heat) and electric CANNOT be shut off until April 1st. There is a winter moratorium on utility shutoffs for non-payments during the cold weather months.

[JohnB321]

Many employers will not allow you to claim unlimited exemptions and those that do often fax W4 forms to the IRS for exemptions greater than 9...