What Happens to Your Tax Refund in a Chapter 13 Bankruptcy in New York?

When filing for Chapter 13 bankruptcy in New York, many clients ask:
“Will I lose my tax refund?”
The answer depends heavily on which district you file in, and what exemptions you use in your case.

Here’s what every New Yorker needs to know about tax refunds in Chapter 13 bankruptcy, especially in the Southern District (SDNY) and Eastern District (EDNY).

Chapter 13 and Tax Refunds: The Basics

In Chapter 13 bankruptcy, you commit to a repayment plan that lasts 3 to 5 years. During that time, your tax refunds are considered income—and the bankruptcy trustee may require you to turn them over to pay creditors.

But not all tax refunds are treated the same in every part of New York.

Southern District of New York (SDNY): You Keep the First $1,500 Per Year

If you file your Chapter 13 case in the Southern District of New York, you are generally allowed to keep up to $1,500 of your aggregate tax refunds each year.  That means you add up your state and federal refunds and subtract $1500.  Anything over $1500 goes to the Trustee in addition to regular payments.  Unless your case is paying off 100% of your debt because of the refund you still need to make regular payments.  If you have a 100% case in any district(pays off all of your debt) then you keep your refunds each year.

That means over the course of a 5-year plan, you can typically retain up to $7,500 of your tax refunds—without needing court permission. Any refund amount beyond that may have to be turned over to the trustee unless you receive court approval to retain more.

This modest protection can make a big difference, especially for families who rely on their annual refund for essential expenses.

Counties in the Southern District of New York (SDNY):

  • New York County (Manhattan)

  • Bronx County

  • Westchester County

  • Rockland County

  • Putnam County

  • Dutchess County

  • Orange County

  • Sullivan County

Eastern District of New York (EDNY): You Keep Nothing Automatically

By contrast, if you file in the Eastern District of New York, the rules are much stricter.

Chapter 13 trustees in the EDNY generally require you to turn over 100% of your tax refunds each year of the plan. There is no automatic $1,500 allowance like there is in the SDNY.

If you want to keep any part of your refund, your attorney must file a motion with the court requesting permission. These motions are often denied unless you can show extraordinary and specific need.

Counties in the Eastern District of New York (EDNY):

  • Kings County (Brooklyn)

  • Queens County

  • Richmond County (Staten Island)

  • Nassau County

  • Suffolk County

Refunds from Prior Years: Can They Be Protected?

What if you’re owed a refund from a prior year when you file? In some cases, those funds can be protected using the federal wildcard exemption—which allows you to shield certain non-essential property up to a set dollar limit.

⚠️ But there’s a catch:
You can only use the federal wildcard exemption if you choose the federal exemption scheme—not the New York State (NYS) exemptions.

This is important because:

Choosing which exemption system to use is a critical decision in any bankruptcy case—and one that should be made with experienced legal guidance.

Planning Tip: Time Your Filing Wisely

If you expect a large tax refund, you may benefit from filing:

  • After receiving and spending your refund on necessities, or

  • After using available exemptions to protect it

In the SDNY, you might keep up to $1,500 per year. In the EDNY, you should assume you’ll have to turn over your entire refund unless you obtain court permission.

Need Help with Your Chapter 13 Case in New York?

At The Law Office of William Waldner, we’ve helped thousands of New Yorkers navigate the complexities of Chapter 13 bankruptcy—including protecting tax refunds whenever possible.

Whether you live in Manhattan, Brooklyn, the Bronx, Queens, or Westchester, we understand the district-specific rules that can make or break your case.

📍 Call now or schedule a free consultation online at www.midtownbankruptcy.com
Let’s protect your refund—and your financial future.

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