Bankruptcy and the Collection Process

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

• 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.