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Last Updated: 12/31/2018


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. 

Automatic Stay

Customers in bankruptcy are protected by an automatic stay which prevents creditors from taking certain actions to collect the debt. For joint tax debts, both customers 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.)  


Types of Bankruptcy

The most common types of bankruptcy are Chapter 7, Chapter 11, Chapter 12, and Chapter 13.    

​Bankruptcy type 


Who files this type of bankruptcy?

​Chapter 7 ​90 to 120 days ​Businesses or individuals
​Chapter 11 ​Up to 6 years ​Businesses and individuals not meeting the requirements for Chapter 13
​Chapter 12 ​Up to 5 years ​Individuals and businesses getting more than 50 percent of their income from farming
​Chapter 13 ​Up to 5 years ​Individuals, married couples with sole proprietorships with regular income


In certain cases, a tax debt or other agency debt (OAD) can 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 a bankruptcy is discharged, we review the account to determine if: 

  • we may discharge certain tax debts

  • the statute of limitations (SOL) for collection of any debts that are not discharged will extend the period of time the debtor was in bankruptcy, plus 30 days

  • other activity by the debtor may change the outcome of the bankruptcy


Dismissed bankruptcy cases are not eligible for any 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 may 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 a customer is in bankruptcy.

Refunds from a spouse not in bankruptcy can apply to a joint debt.