I owe the IRS for 2008 - What about a Refund Next Year?

[simon2020]

I pre-calcuated my tax return for 2008 and it looks like I will owe about $1,500 to the IRS.

Since I cannot add this to my Ch 13 plan - it's not over 3 years old, I will make arrangements to pay them in installments outside of the plan.

Question: Next year this time, I file for 2009 and assuming I am in my Ch 13 plan paying my monthly payment to the trustee diligently -- if fo '09 I find out, hey, I am receiving a refund. . . will the IRS take the refund to pay for my deficit in 2008 OR will my trustee call me to hand it over so he can use it for the plan?


By the way, if I receive a windfall or tax refund and the trustee takes the money, does it lower the amount of months I have to pay into the plan???

Thank you for your time.

[Flamingo]

First, you need to advise your attorney about you possibly owing $1500 to the IRS and your plans. Secondly, you should look into adjusting your taxes so you will not owe nor get back a lot for 2009. Your attorney can advise you as to your situation when/if you get a refund for 2009 just in case the IRS applies it to anything outstanding for tax year 2008.

If you receive a windfall, inheritance or big tax refund and the trustee keeps it, it does not reduce the amount you owe during your Chapter 13 - it will increase what your unsecured creditors will receive as it will be distributed among them. We had a small inheritance from my father-in-law get disbursed that way during our Plan.

[HHM]

You CAN pay that 2008 tax in your plan. Just because it cannot be discharged, does not mean you cannot pay it through the plan. Actually, most people with non-dischargeable tax debt pay that debt within the chapter 13. The tax debt is priority debt and therefore gets paid BEFORE your unsecured creditors.

Future refunds will not affect the length of your chapter 13 plan unless you are already paying back 100% to unsecured. If you are paying back less than 100%, the refunds up the percent to unsecured.

[simon2020]

HHM You CAN pay that 2008 tax in your plan. Just because it cannot be discharged, does not mean you cannot pay it through the plan. Actually, most people with non-dischargeable tax debt pay that debt within the chapter 13. The tax debt is priority debt and therefore gets paid BEFORE your unsecured creditors.

Future refunds will not affect the length of your chapter 13 plan unless you are already paying back 100% to unsecured. If you are paying back less than 100%, the refunds up the percent to unsecured.

HHM - that is what I was wondering as well. My attorney is projecting 100% since I want to keep my house. So my understanding from you is:

1. Even if the tax owed is recent I can include it with my plan.
2. If I am 100%, then can I keep my refund????? What is the threshold? I heard it is like $500 or more then the trustee will ask for the balance.
3. I am planning to file by 3/1/09 - it's a strategy because I have a 3/15/09 Motion for Summary Judgement and I don't want a wage garnishment, etc.

Correct me if I am wrong -- should I file ASAP and give my numbers to my attorney so the petition can be updated with my tax debt?

Thanks.

[Flamingo]

Simon - we filed in 4/02 and included our state and federal taxes owed for 2001 in our filing. If you have your returns done and you do end up owing what you state you may owe, contact your attorney and you will be advised what to do. When we sent in our returns for 2001, we put a copy of our BK filing right on the top and did not include any money. Your attorney will correctly instruct you how to handle it.

[simon2020]

Cool!

Thanks Flamingo. I'll do that.

By the way how did it work out for future years regarding the IRS/State taxes while you paid those taxes in your ch 13 plan?

Did you owe again in subsequent years? And if yes, did you pay it outside of the plan?

[OhioFiler]

HHM - that is what I was wondering as well. My attorney is projecting 100% since I want to keep my house.

I've wondered about this concept. Why file BK if you end up with a 100% plan? Wouldn't a plan via consumer counseling or working directly with creditors make more sense?

[StartingOver08]

Actually the advantage to a CH 13 when you are paying 100% is that there are no interest and fees being added and the CH 13 keeps the creditors in line.

[OhioFiler]

Actually the advantage to a CH 13 when you are paying 100% is that there are no interest and fees being added and the CH 13 keeps the creditors in line.

Can't I accomplish the same thing via credit counseling service without having to report to a trustee every exceptional detail of my finances for the next five years?

[Flamingo]

Can't I accomplish the same thing via credit counseling service without having to report to a trustee every exceptional detail of my finances for the next five years?

A credit service does not afford one the protection of bankruptcy and most people who go to a service first end up filing bankruptcy. The service also charges fees, and usually works to get your interest reduced but usually not eliminated. You have to work the numbers and scenario in your situation as to what will work for you. If you have assets you want to protect and save, a credit service won't be able to help you.

[Flamingo]

Cool!

Thanks Flamingo. I'll do that.

By the way how did it work out for future years regarding the IRS/State taxes while you paid those taxes in your ch 13 plan?

Did you owe again in subsequent years? And if yes, did you pay it outside of the plan?

I need to do a Blog - LOL! Not enough hours in the day for me...anyway, we included just over $2,000 (IRS) and about $400 (state) in our BK filing for the year 2001 (we filed in 4/02). I almost lost it when our taxes were done and we owed so much - mostly due to loss of deductions and increasing filing exemptions on my job when my hubby lost his...anyway, our fantastic attorney told us what to do, we got our taxes finalized, gave him copies and he included them in our filing prior to 4/15/02. We sent in the tax forms to the IRS and State with just a copy of the electronic filing on the top showing our case number pursuant to our attorney. When we heard back from the IRS, we sent all documentation to our attorney. It took the IRS several months to catch up with our filing so if you do that, you will have months of notices come in from them that your taxes are late, penalties, interest, etc. Just hand that to your attorney.

Federal and State taxes were paid out of our Chapter 13 for 2001 as priority creditors and they were sent payments by our Trustee. The taxes were not reduced but the interest and penalty information that came in the mail after 4/15/02 was eliminated and the amount of our taxes due at 4/15/02 was the amount included in the BK and what was eventually paid in full. During the remaining years of our Plan, we had to pay (owed) but very low amounts which we just paid (we kept it that way - no refund). However, due to a mistake as to the $1,000 child credit for 2004 (Turbo Tax messup - have not used Turbo Tax since), we ended up owing $1500 for 2004. We contacted our attorney who advised us to ask the IRS for a payment plan...to send in the federal form for the request along with our filing and send in a small check, whatever we could afford. When the IRS got back to us, we called them and we were referred to their BK section who advised us we could not have a "second" payment plan as we were already paying back through Chapter 13 on a "first" payment plan for tax year 2001 (a tax payor cannot have two payment plans at once). We had to voluntarily send in what we could until the taxes were paid in full. During that period of time, we bought out of our Plan early and paid the balance off when we refinanced our home to buy out of our Plan. We were responsible for interest and penalties on the 2004 taxes from the time we filed to time of payoff.

We did not receive any tax refunds during our plan years but have since discharge as we are now itemizing again (did not have enough deductions during the Plan years to itemize).

You cannot jump the gun in a Chapter 13. You have to work with what you have now and not worry too much about down the road cause it just may not occur for you. Your situation and others situations will vary. When things occur, as to you possibly owing taxes, consult with your attorney because it will affect your financial house during your Plan and it is your Trustee who is in charge of your financial house during that time. If you try to plan for something that may not occur for you, you will drive yourself nuts - believe me, most of us on here who have filed will attest to that.

[deerme]

I also had to include another year of owing the IRS into my C13. I went into my BK claiming 6 exemptions and then the Trustee made me get rid of a 401k loan I was paying myself back on. There were penalties involved there.

My attorney was absolutely no help (high volume schmoo) so I called the IRS. They were great, they gave the phone number of a local person that handled everything. I never heard another thing and there it was on my next statement from the Trustee!

Then I finally decided to quit smoking and that gave me enough money to make up for lowering my exemptions. Last year I got a $200 refund from the Feds!! WooHoo!!

Good luck with this!

[simon2020]

A credit service does not afford one the protection of bankruptcy and most people who go to a service first end up filing bankruptcy. The service also charges fees, and usually works to get your interest reduced but usually not eliminated. You have to work the numbers and scenario in your situation as to what will work for you. If you have assets you want to protect and save, a credit service won't be able to help you.

Flamingo --- thank you for enlightning "Ohiofiler" regarding Chapter 13 vs. Debt Credit Counseling.

The main reason I am filing is because I was served for a large Citi Bank personal loan back in the summer. I hired an attorney to file the ANSWER for me to "delay" the inevitable MOTION FOR SUMMARY JUDGMENT which would have happened back on 9/30/08. Then of course, in about a month or 2, my attorney said they would start WAGE GARNISHMENT on my paycheck. Well, let me tell you if they took up to 25% of my wages, I would be totally broke because now I wouldn't be able to eat or pay my mortgage.

So, then - as of now I have a Motion for Summary Judgment set for early March 2009. My bankruptcy attorney is preparing my petition in time to SERVE Citi Bank BEFORE they hit me with a Summary Judgment. Well, some of you might say why the rush to avoid the Summary Judgment when your credit is already whacked out? Well, it's the gist of the matter that although I am filing for ch 13, I just want to hit the Citi Attorney on the head with my Ch 13 papers just like they served me back in the summer of 2008. Now it's my chance to freak them out and I'll see them in court.

Remember now, I had no choice but to hired a bankruptcy attorney to:

1. Save my paycheck
2. Save my house
3. Save my sanity!

Secondly, "Ohiofiler" --- I did in fact see 3 debt counselors and guess what, they said I had so much debt that even if they reduced the interest rates on my cards/loans, I did not have enough funds to work the plan.

SOOOOOOOOOOOOOOO, inorder to save my house, I consulted a bk attorney and he said although I have enough equity to to pay off all creditors - I would have to file a Ch 7 and get rid of the house. Fat chance, this is my home.

So I will pay all creditors in a 60 month plan and so be it. That was my choice and with the help of my attorney, I am preparing myself for a life of paying cash/debit card, living on a tight budget, but hopefully at the end of my plan, I will be a better person in terms of handling credit. (I also hope our country gets its act together as well -- as you and I know all the large financial institutions got all of us in this mess too!)

[EricaCallaha]

Our tax refund for 2008 will reduce the amount owed at the back end of the plan. Utah allows for this but you have to pay at least 36 months.

Our case:

In a 13 filed 12/24/08.
Unsecured getting about 25,000 (about 32%)
Secured 11,500
Tax refund for 2008 $6,300 (yikes)
Our trustee and attorney said our plan will run about 56 months at $759 a month
$6300/$759= 8 months of payments (about)
Plan is now 48 months.

However, Utah is the only state where I have seen this happen. My mom is getting ready to file in Colorado and I have a cousin filing in Nebraska and a friend filing in Texas and this logic does not apply there. I would not believe this had the trustee not told us this and it is in writing in our paperwork with the trustee.

[OhioFiler]

Flamingo --- thank you for enlightning "Ohiofiler" regarding Chapter 13 vs. Debt Credit Counseling.


Secondly, "Ohiofiler" --- I did in fact see 3 debt counselors and guess what, they said I had so much debt that even if they reduced the interest rates on my cards/loans, I did not have enough funds to work the plan.

Simon...I hope you didn't take my posts as questioning why you were doing a Chapter 13. I was looking for help as to the benefit of me filing as such. We exceed the median income and may have to do a 13 and I'm trying to understand the value in doing so and certainly had no intention of questioning your decision.