There are a number of reasons why different individuals file for bankruptcy every day. One of those reasons is that filing for bankruptcy offers a certain set of protections that are not available in any other way. We’ve discussed the protection of the automatic stay on property and even that your creditors cannot continue to contact you or attempt to collect a debt. However, like all things, there is a notable exception to this rule: the Internal Revenue Service. Many of our clients are indebted to the IRS. This can have a number of different outcomes, depending on the situation and case. Remember, this does not constitute legal advice, and if you have questions about this you should speak to an attorney as soon as possible.

Let’s start with the big picture. Taxes are rarely dischargeable. There are some instances where taxes can be discharged, but it’d be best to discuss that with your attorney. So, generally in a Chapter 7, you will have the protection of the bankruptcy, but the debt is not discharged. Basically, this means that after your bankruptcy the IRS can still continue to contact you, garnish wages, and make any other type of collection efforts (including intercepting any tax refunds for subsequent years).

If you are filing a Chapter 13 this gets a little more complicated. We will go over this in person, but you are required to have all of your tax refunds filed for the previous four years when you file for bankruptcy. If they are not filed we will instruct you to do so immediately. In some cases this may happen just after your bankruptcy, or so close to it that the IRS does not receive or process the returns until after your bankruptcy is filed. And even though an ordinary creditor wouldn’t be able to collect, if you are entitled to a tax refund for a year prior to your bankruptcy it can be intercepted to satisfy any debt owed to the IRS for years prior to the bankruptcy. This is because the tax was already due to the IRS. However, the IRS cannot continue to intercept for tax years during the Chapter 13 bankruptcy.

If all of your tax returns have been timely filed it remains fairly straightforward as far as the IRS is concerned. However, it may not be straightforward as far as the bankruptcy is concerned. Missouri and Illinois have different rules regarding tax refunds and credits and how they are handled. However, if you are expecting a tax refund during a bankruptcy it is imperative that you consult with your attorney immediately and do not spend any of the refund until you attorney advises you of how to proceed.

If you have questions about this, or any other matter, please contact your St. Louis Bankruptcy Attorney Today!