Tax Refund is Still Being Taken After Bankruptcy Discharge
My question involves bankruptcy in the state of: Arizona. Filed chapter 7 with my husband back in 2010 we paid off all are secured loans and are irs federal and state settlements. Our bankruptcy has been discharged for over 3 years and they are still taking my federal refund. if I made a settlement payment with them in the chapter 7 and pay them in full on the settlement are they still allowed to keep taking my federal tax return
Re: Still Taking My Refund
Who is taking the tax refund? The IRS? The bankruptcy trustee? State child support agency? Some other federal or state agency? And to what debt is the refund being applied — a debt that you owed prior to the day you filed the bankruptcy petition or a debt that arose after? The details matter.
Re: Still Taking My Refund
IRS STATE AND FEDERAL are taking our refunds We paid the back owed taxes in full. we were told by our attorney the penalty and interest on that we're not secured debt and that we did not have to pay that after the bankruptcy but they are still claiming that we do have to pay it and are keeping our IRS tax return
Re: Still Taking My Refund
The interest is only dischargeable if the underlying taxes were dischargeable. Since you indicated you paid the tax, I'm guessing it wasn't. "Secured/Unsecured" doesn't enter into it when you're talking about the tax man.
Re: Still Taking My Refund
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Micdes
IRS STATE AND FEDERAL are taking our refunds We paid the back owed taxes in full. we were told by our attorney the penalty and interest on that we're not secured debt and that we did not have to pay that after the bankruptcy but they are still claiming that we do have to pay it and are keeping our IRS tax return
You really need to go back and talk to your bankruptcy attorney. You are using a lot of incorrect and confusing terminology here (there is no such thing as a state IRS, the money you get back is not a "return" it is a refund, the return is the document you file with them etc.) leading me to believe that you may either not have understood what your attorney said, or that some other confusion is in place.
Re: Still Taking My Refund
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llworking
You really need to go back and talk to your bankruptcy attorney. You are using a lot of incorrect and confusing terminology here (there is no such thing as a state IRS, the money you get back is not a "return" it is a refund, the return is the document you file with them etc.) leading me to believe that you may either not have understood what your attorney said, or that some other confusion is in place.
I second this advice. I think the attorney needs to explain just how it works and what actually happens, and the poster should confirm to the attorney that s/he understands.
Re: Still Taking My Refund
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Micdes
IRS STATE AND FEDERAL are taking our refunds We paid the back owed taxes in full. we were told by our attorney the penalty and interest on that we're not secured debt and that we did not have to pay that after the bankruptcy but they are still claiming that we do have to pay it and are keeping our IRS tax return
I assume you mean to say that the refunds are being offset to pay delinquent federal and state income taxes owed. Not all income tax obligations are dischargeable in bankruptcy. As a general rule income taxes owed on returns filed less than 3 years prior of the date of your bankruptcy petition or that were assessed less than 240 days prior to filing your bankruptcy petition are not dischargeable. If the tax obligations were not dischargeable then you still end up owing all of the tax debt — tax, penalty, and interest. The IRS and state tax agency would still stand in line with your other creditors, though, to get paid out of any assets the trustee collected to pay creditors. So it may be that the court directed that some of the funds in your bankruptcy go to pay at least the tax portion of the debts you owe to the tax agencies. But if the debt was not discharged, you still owe any balance left over after those payments were applied. If you are unsure whether the taxes were discharged or not, contact your attorney and ask him/her this question: were my federal and state tax debts discharged in my bankruptcy? If the answer to that question is no, then you still owed any balance still due on those debts when the bankruptcy was over and the IRS and state may offset your future refunds to collect it.
Re: Still Taking My Refund
Please forgive me if I mess up the terminology :o
If the tax refund becomes part of the bk estate, can IRS still intercept the refund to offset the debt? I think that's what you just said Tax, but I'm not sure.
Re: Still Taking My Refund
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flyingron
"Secured/Unsecured" doesn't enter into it when you're talking about the tax man.
Actually whether the tax debt is secured can matter a great deal in bankruptcy. I’ll give you two examples.
First, suppose the tax obligation is indeed dischargeable. If the tax obligation is dischargeable, then it is a general unsecured debt, pretty much the lowest priority for payment in bankruptcy, unless the IRS had properly secured its interest prior to the bankruptcy filing by filing a notice of federal tax lien. Like any other creditor, have a secured interest bumps up its priority with respect to the non exempt assets to which the lien attaches. The tax agency will be able to collect its share of the proceeds on the sale of those assets. The secured lien interest can also survive with respect to exempt or abandoned assets, giving the agency an opportunity to collect from those assets even after the bankruptcy is over.
Second, assume the tax obligations are not dischargeable. If the tax agency has a secured interest in nonexempt assets sold by the bankruptcy trustee, the agency will get paid its share of the proceeds from the sale of that asset, allowing it to collect sooner than it might otherwise if the tax was not secured.
These reasons, among others, were why the IRS emphasized the importance of revenue officers and ACS filing the notice of federal tax lien as early as possible when I worked at the IRS. It can make a considerable difference in the government’s ability to collect.
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Dogmatique
Please forgive me if I mess up the terminology :o
If the tax refund becomes part of the bk estate, can IRS still intercept the refund to offset the debt?
If the trustee claims the tax refund on behalf of the bankrupt estate, the refund will be distributed to creditors based on their priority in the bankruptcy. It would not necessarily go to the tax agency to pay the debt owed to it. Note that generally speaking, in a Chapter 7 bankruptcy the trustee may only claim refunds due the taxpayer for tax periods prior to the filing of the bankruptcy petition. If the petition is filed in the middle of the year, the trustee may claim the share of the refund for that year which is allocated to the part of the year prior to the bankruptcy filing.
Re: Tax Refund is Still Being Taken After Bankruptcy Discharge
All the delinquent tax was paid in full with the chapter 7 - the penalty and interest what they are taking are refund for is penalty and interest which our attorney who has retired said they should have been written off.