Are you planning to file Chapter 13 bankruptcy? While many people automatically think of Chapter 7, or debt discharge, when they think about bankruptcy, Chapter 13 preserves your assets while providing the breathing room you need to recover. 

To achieve the best result for your Chapter 13 case, though, you must understand how income taxes fit into the picture. What effects do your income taxes have before and during your repayment plan? And what should you do to reduce the possibility of problems? Here are five important tips. 

1. File All Your Tax Returns

Any bankruptcy case generally requires that the debtor has filed all their recent tax returns. Ideally, these should be filed in advance of your case so that any remaining amounts due can be properly calculated with your other debts. If you haven't filed before you begin your case, you will need to do so within a short window afterward.

2. Adjust Your Withholding

Your goal in Chapter 13 should usually be to have exactly the right amount of state and federal income tax withheld. If you withhold too much money from paychecks, refunds may be used to pay off creditors rather than going to you. And if you pay too little, you may end up with an unexpected debt that throws off your payment plan calculations. 

3. Plan the Use of Any Refunds

If you expect a tax refund but haven't yet received it (or you get it while determining your payment plan), decide whether to include it as part of your payment plan or not. If you need it to meet monthly bills, the court is likely to allow you to use it for these. However, if you don't make a plan, the trustee will decide what you're allowed to use it for. 

4. Talk to the Trustee About Changes

No one can foresee the future, of course. If you have an unexpected bill or a change in income, you may need to use a tax refund to cover your expenses. If this happens, take your case to the trustee. The trustee is generally authorized to alter your plans even after filing with the court — if the circumstances legitimately warrant it. 

5. Meet With a Bankruptcy Attorney

The best way to ensure you avoid any pitfalls involving your income taxes or refunds is to work with an experienced bankruptcy lawyer. Consult with one early in your case to answer any questions about your particular tax situation. 

Want to learn more? Start by meeting with an attorney in your state today. Together, you can craft a plan that makes the best use of Chapter 13 options and minimizes problems related to your taxes.