It's tax time! If you're a Chapter 13 debtor, you must do these 3 things!

By Tracy L. Hirsch

If you’re currently in a Chapter 13 plan and live in the greater Louisville area, be sure to read this before turning over your tax refund money to your trustee.

As February quickly approaches, the season for submitting tax returns and receiving tax refunds is currently underway. While that’s usually a fairly straightforward process, it looks different for those who are in a Chapter 13 bankruptcy plan.

If you’re a debtor in the western district of Kentucky, and are paying back less than 100% of your debts to your unsecured creditors in your Chapter 13 plan, you are required to comply with ‘Local Rule 6070-1.’

Here’s what you need to know about Local Rule Compliance.

Local Rule 6070-1 is a set of requirements that are mandated annually in the Western District of Kentucky. If your Chapter 13 plan pays less than 100% to unsecured creditors, the requirements must be completed every year that you are in a Chapter 13 plan.

The requirements should be completed by April 15th every year, although there is a 30-day grace period if you didn’t get your taxes filed until April 15th (which means that all of the requirements must be completed by May 15th every year).

The requirements are as follows :

> Send copies of your state and federal tax returns to your trustee

> Send any state and federal tax refund money to your trustee (less certain exemptions)

> Fill out and send your annual budget to your trustee

Failure to comply with the above requirements can results in a dismissal of your bankruptcy case. You may be wondering if there are any exceptions to turning over your tax refund money, and there are, but they have to be done through the proper channels.

It’s imperative to follow Local Rule 6070-1 in order to avoid dismissal of your case.

If you’ve had a recent medical emergency or lost your job or had hours cut, there is a possibility of being allowed to use your tax refunds for medical bills and living expenses under those circumstances.

However, you must speak to your attorney first. Your attorney has to file a motion with the Court to get permission for those extenuating circumstances, so you have to speak to your bankruptcy attorney AND get permission from the Court before you spend any of your tax refunds.

If you’re in this position, this is a good time to re-evaluate your case with your attorney, which leads us to an important question that you may have:

Is a Chapter 13 plan still the best option for me, or should I consider converting to a Chapter 7?

This is a great question, and one that your bankruptcy lawyer should be able to answer. There are actually many legitimate reasons for converting from a Chapter 13 bankruptcy plan to a Chapter 7, such as:

> A drop in income due to job loss or a reduction in work hours

> Getting a divorce

> Deciding to give up your real estate (or possibly do a modification)

> Needing to replace your car due to the fact that it was totaled or is beyond repair due to excessive mileage

> Other factors that make you eligible for a Chapter 7 discharge

It’s very important that during the course of your Chapter 13 bankruptcy plan, you immediately communicate any changes to your attorney — whether it be a change in your:

> income (an increase or decrease)

> address

> marital status

> health status

> job status (total loss of job or change of employers)

> anything related to your mortgage, car, and other assets

You will risk having your case dismissed if your attorney is unaware of any of those changes, so it’s important that you notify him or her immediately in order to avoid any issues in your case.

Are you currently in a Chapter 13 plan, and want to know if you qualify to convert to a Chapter 7?

If so, speak to your bankruptcy attorney so that they can help you. Reassessing your case based on changes in your life circumstances can help your attorney help YOU (and that’s what matters most)!

Have you been considering filing for a personal bankruptcy, but aren’t sure which Chapter is right for you? I offer free phone consultations to help Louisville residents weigh their financial options when it comes to unpaid debt.

You can text or call me at (502) 435-2593 to find out how you can start on a path to a debt-free life!

All the best,

Tracy L. Hirsch

Need a free consultation? Text or call me at (502) 435-2593!

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