What Should I Do if the IRS Takes my Tax Refund while I am in Chapter 13 Bankruptcy?

by Bankruptcy Law Network (BLN)

September 25, 2007

Occasionally, following the the filing of a Chapter 13 bankruptcy and while the case is still pending, particularly in cases where the Debtor owes a pre-petition tax obligation to the Internal Revenue Service, tax refunds ordinarily due to the Debtor will be intercepted by the agency and applied against the Debtor’s federal tax obligations.  Should this occur, the Debtor obviously should immediately contact his or her Counsel.  Ultimately, the Debtor should demand that the Internal Revenue Service amend their Proof of Claim as originally filed.  The Debtor may also need to file an Amended Chapter 13 Plan. 

Questions arise as to whether conduct of this nature by the Internal Revenue Service comprises a violation of the Automatic Stay imposed by 11 U.S.C. Section 362(a).  Due to new Section 362(b)(26), said conduct may or may not be a violation of the Automatic Stay.   However, Debtors should inquire with their Counsel as to whether the Order of Confirmation has been violated under these circumstances.

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Last modified: December 15, 2009