What will happen to my tax refund in bankruptcy?

In a chapter 7 bankruptcy, any earned but unpaid tax refunds are property of the bankruptcy estate. This generally means two things. First, last year's tax refund, if you have not gotten it and spent it, will go to the bankruptcy trustee. Second, a portion of this year's tax refund will go to the bankruptcy trustee.

In a chapter 13 bankruptcy, all tax returns during the commitment period will be paid into the chapter 13 plan.

You can do yourself a favor by not having the IRS withhold more than is necessary. If you claim all the exemptions you are entitled to claim on your W-4 withholding form, you are more likely either to have a smaller refund or actually owe money to the IRS at the end of the year. If this is the case, there will be no refund to be seized by the bankruptcy court.

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