Bankruptcy court has more to say about debtors’ tax refunds

The Bankruptcy Court for the Eastern District of Michigan used to require Chapter 13 confirmation orders to include a provision ordering the IRS to pay debtors’ tax refunds directly to bankruptcy trustees.

The problem was, the IRS didn’t like being told to do that. It sued to prevent the bankruptcy court from including the requirement in the confirmation orders.

U.S. District Court Judge Denise Page Hood last month shot down the direct payment provisions. See, The Michigan Lawyer: Bankruptcy court can’t order IRS to give trustees debtors’ refunds

Bankruptcy Chief Judge Phillip Shefferly has responded with a new directive.

To continue facilitating compliance with the obligation to pay tax refunds to the trustee, notice is hereby given that in each case in which an order confirming the plan has not yet been entered and in which the debtor’s plan provides for the payment of tax refunds to the trustee, the debtor shall sign, as requested by the trustee,

(1) any appropriate IRS forms that authorize the IRS to forward the debtor’s tax refunds directly to the trustee, whether by check or direct deposit, and,

(2) any appropriate form that will authorize the trustee to endorse, negotiate and deposit the debtor’s tax refund check for the debtor’s chapter 13 account.

Shefferly’s directive applies to Chapter 13 cases in which the meeting of creditors or the confirmation hearing is on or after Friday, March 26, 2010.

1 thought on “Bankruptcy court has more to say about debtors’ tax refunds

  1. Pingback: Eastern District Bankruptcy Court refines tax refund procedure « The Michigan Lawyer

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