Why Withholding the Proper Amount of Taxes from Your Paycheck While in a Chapter 13 Bankruptcy is Important to the Success of Your Bankruptcy

By Attorney Kristen Whelchel

  1. Most trustee will allow you to keep only $1,200 ($2,000 if you filed a joint case) of any taxes refund you get depending. If you are over withholding, you will most likely not be allowed to keep the money.
  2. If you are under withholding, you may owe taxes for upcoming years. Owing taxes for post-petition tax years, may cause you problems. The IRS could make a motion to have your case dismissed.
  3. If you are over withholding, your budget may incorrect and you may have issues making your Chapter 13 payments.

While in a Chapter 13, your goal should be to break even on your taxes each year. Consulting with your tax preparer is helpful in determining how much you should withhold.

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