Business Taxes and Bankruptcy

Bankruptcy Discharge – At the conclusion of a bankruptcy, the taxpayer will receive a general Order of Discharge. There are exceptions to discharge particularly for taxes. Your case will be reviewed to determine which tax periods/years are eligible for discharge. If there is tax liability that is not discharged, it will become collectable again and the taxpayer must go on a payment plan.

Trust fund taxes (Sales and Use Tax or Withholding Tax) are not dischargeable in bankruptcy if the liability is not paid (either for the business or the officer of that business).

If you dispute any tax period/year that is not dischargeable, you must reopen your bankruptcy case with the Bankruptcy Court to allow the judge to rule on that particular tax liability.

Bankruptcy Dismissal – If your bankruptcy is dismissed by the Bankruptcy Court (voluntarily by the taxpayer or on court order for failure to comply with bankruptcy rules), the automatic stay is terminated immediately. As such normal collection actions will be reinstituted for your tax liability.

Collection Actions – During an active bankruptcy, the automatic stay is in place. The automatic stay prevents creditors from pursuing collection actions. The Comptroller may not conduct collection actions such as bank attachments, MVA holds, refund offsets, formal payment plans, professional license holds, file liens, salary garnishments or vendor payment offsets for tax liability related to your bankruptcy case. Notification of the bankruptcy is key to allow our staff to put the case in bankruptcy hold once an assessment has been issued.

Claims – The Comptroller has 180 days from the bankruptcy filing date to file a claim unless another bar date is designated by the Bankruptcy Court. If a taxpayer fails to file returns, estimated tax assessments may be generated in order to file a claim. A claim is filed on the tax liability prior to the petition date (the date you file bankruptcy). The claim will not include tax liability for tax years after you file bankruptcy and is not included in your bankruptcy case.

Notices – During an active bankruptcy, the Comptroller is allowed to send notices to demand filing of returns, notices of tax assessments and audit notices. Taxpayers may also receive payment plan cancellation notices if the taxpayer was in a formal payment plan prior to filing bankruptcy.

Payment Plans – The Comptroller cannot establish formal payment plans during an active bankruptcy as we will file a claim to receive payment for the tax liability. If the taxpayer has a prior payment plan in place for tax liability under the bankruptcy, it will be cancelled. A payment plan cancellation notice will be sent.

Bankruptcy Filing – Any taxpayer that has a tax liability must list the Comptroller of Maryland (“Comptroller”) as a creditor on their bankruptcy petition so that the agency is properly notified about the bankruptcy.