On January 27, 2010, the U.S. Bankruptcy Court for the Eastern District of Michigan (which covers Detroit, Bay City, and Flint) posted a notice on its website regarding the treatment of tax refunds in Chapter 13 cases. The notice (available here) reports that on January 20, 2010, in an action brought by the Internal Revenue Service, the United States District Court for the Eastern District of Michigan issued an Opinion and Order Granting Petition for Writ of Mandamus. This Order (available here) prohibits the United States Bankruptcy Court for the Eastern District of Michigan from entering any order confirming a Chapter 13 plan that contains a provision directing the Internal Revenue Service to pay the debtor’s tax refunds to the Chapter 13 trustee. Further, this recent Order prohibits the Chapter 13 trustees for the Eastern District of Michigan from seeking to enforce orders that have already been entered confirming a Chapter 13 plan, if such order directs the Internal Revenue Service to pay the debtor’s tax refunds to the Chapter 13 trustee instead of to the debtor.
In light of this Order, the Bankruptcy Court for the Eastern District of Michigan will no longer enforce any order confirming a plan that has already been entered, to the extent that it directs the Internal Revenue Service to pay the debtor’s tax refunds to the debtor’s Chapter 13 trustee. The Bankruptcy Court will continue to enforce previously entered orders confirming plans in all other respects. Further, the Bankruptcy Court will not, from this point forward, enter any order confirming a Chapter 13 plan that contains a provision directing the Internal Revenue Service to send the debtor’s tax refunds to the debtor’s Chapter 13 trustee.
For more information about bankruptcy-related tax issues, see John O’Connor’s articles on this site, “Be Careful With Tax Refunds in Bankruptcy” and “What happens to property I acquire after filing for bankruptcy?”, as well as my recent entry which can be accessed here.
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