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Bankruptcy and the Collection Process
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Bankruptcy is the court-ordered protection for those who cannot pay their bills. A bankruptcy claim is a creditor's written notice to the bankruptcy court of its right to payment from any funds in the bankruptcy.
The Department of Revenue may file a bankruptcy claim for payment of tax debts in certain bankruptcies. Other state agencies are responsible for filing the claims for their other agency debts that they may have referred to us.
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| Type |
Duration |
Who files this type? |
| Chapter 7 |
90-120 days |
Businesses or individuals |
| Chapter 11 |
Up to 6 years |
Businesses or individuals not meeting requirements for Chapter 13 |
| Chapter 12 |
Up to 5 years |
Individuals and businesses getting more than 50% of their income from farming |
| Chapter 13 |
Up to 5 years |
Individuals, married couples with sole proprietorships with regular income |
If you are in bankruptcy, you are protected by an automatic stay which prevents creditors from taking certain actions to collect the debt. For joint tax debts, both spouses must file bankruptcy to be protected by the automatic stay. (See United States Courts, Chapter 11, section 362(a).)
The automatic stay can be modified for Corporate, Individual Income, and Withholding Taxes. We can issue notices of tax delinquencies, assess taxes, issue refunds on tax returns, and use those refunds to reduce existing debt. (See Bankruptcy Local Rule 4001-1.)
In certain cases, a tax debt or other agency debt (OAD) may be discharged in bankruptcy. For debts not discharged, bankruptcy extends the time we have to collect and assess officers of a business. (See Minnesota Statutes, section 289A.41.) When your bankruptcy is discharged, we review the account to determine if:
- We may discharge certain tax debts
- The statute of limitations for collection of any remaining debt is extended for the time you were in bankruptcy, plus an additional 30 days
- Other activity you take that may change the outcome of the bankruptcy
Dismissed bankruptcy cases are not eligible for discharge of debts. Creditors have the same collection rights as before the bankruptcy. We extend the SOL of any debts in the bankruptcy by the length of time the bankruptcy was open, plus an additional 30 days.
We apply income tax refunds using the following rules:
- Pre-petition end dates apply to pre-petition debts
- Post-petition end dates apply to post-petition debts
We do not apply property tax refunds to any debt when you are in bankruptcy.
Refunds from a spouse who is not in bankruptcy can apply to a joint debt.
