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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. You are protected against certain collection actions from the Minnesota Department of Revenue while your bankruptcy case is active.
Bankruptcy Claims
A bankruptcy claim is a creditor's written notice to the bankruptcy court of its right to payment from any funds in the bankruptcy.
- We may file a bankruptcy claim for payment of tax debts in certain bankruptcies.
- Other agencies that refer debt to us for collection are responsible for filing a bankruptcy claim for debts we collect on their behalf.
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This table summarizes the main types of bankruptcy for businesses and individuals.
| Type | Duration | Who files this type? |
|---|
| Chapter 7 | 90 to 120 days | Businesses and individuals |
| Chapter 11 | Up to 6 years | Businesses and individuals not meeting requirements for Chapter 13 |
| Chapter 12 | Up to 5 years | Businesses and individuals getting more than 50% of their income from farming |
| Chapter 13 | Up to 5 years | Individuals with regular income |
If you are in bankruptcy, the automatic stay under U.S. Code, title 11, section 362, protects you by preventing us from taking certain collection actions to collect the debt.
However, we can still issue notices of tax delinquencies, assess taxes, issue refunds on tax returns, and use those refunds to reduce existing debt.
For joint tax debts, both spouses must file bankruptcy for both spouses to be protected by the automatic stay.
In certain cases, a tax debt may be discharged in bankruptcy.
When your bankruptcy is discharged, we review your account to determine if:
- We may discharge certain tax debts.
- There has been other activity that may change the outcome of the bankruptcy.
For debts not discharged, Minnesota Statutes, section 289A.41, extends the time we have to collect a tax debt and assess officers of a business who are personally liable for the debt by the amount of time you were in bankruptcy, plus an additional 30 days.
Dismissed bankruptcy cases are not eligible for discharge of debts. Creditors have the same collection rights as before the bankruptcy. We extend the statute of limitations of any debts in the bankruptcy by the length of time the bankruptcy was open, plus an additional 30 days.
Individual Income Tax Refunds
We apply income tax refunds using the following rules:
- Refunds from pre-petition periods can be applied to pre-petition debts.
- Refunds from post-petition periods can be applied to post-petition debts.
- Refunds from a spouse who is not in bankruptcy can apply to a joint debt.
Property Tax Refunds
We do not apply Property Tax Refunds to any debt when you are in bankruptcy.
