IRS payment in BK plan or outside of BK plan

[Jengo]

I'm assuming that including the IRS back taxes in the Chp 13 BK plan would be a better idea than leaving them on the outside of your BK plan. It seems to make things less complicated, especially since everything is paid in a lump sum every month. You don't have tons of bills coming in from Trustee or IRS, etc., etc. I've searched the forum for the past 2 hours or so and haven't been able to find much about this subject, although it is probably right under my nose.

I have suggested to my husband to include it all into the CHp 13 for my husband's plan as well as taking the option of having the payment automatically deducted from his paychecks every month thereby ensuring a better likelihood of success of following through, not missing payments, etc. Plus he knows I would help him anyway when he needs it, if car breaks down, etc., and the Trustee doesn't need to know that family is helping him on ocassion, etc., and staying under the radar so to speak.

Question I have to anyone that has been in the whole tax situation and owing back taxes:

What are the pros and cons of including the IRS in the payment plan versus setting up payment plan with IRS before filing for Chp 13?

I think it would be better to include them in the Chp 13 filing rather than doing outside the BK forum.

Ty for any responses

[AngelinaCat]

Hi Jengo, I do not know how it works with Ch13s, but with our Ch7, once the 'Suggestion of Bankruptcy' notice went out to all of our creditors--including the IRS--the IRS sent us a notice suspending our payments until after our BK was over.

The IRS was--and is--our major creditor. Due to several bad decisions, we owed IRS about 30K in back taxes. We had been on a payment plan for about a year, then finally filed CH7. We had been trying for a Ch13, but my job loss in 2007 nixed that. The IRS sent the suspension notice. Then after we were Discharged, we got another notice from IRS that they would comence a Levy on our income for the remainder, and to get in touch with them.

We did, and worked out another repayment plan and have modified it a couple of times since.

The people we talked with have been very helpful and cooperative. Unlike the stereotype images that everyone seems to have, we have found the personnel we have dealt with to be very nice.

Good luck to you in your situation.

[Jengo]

Hi Jengo, I do not know how it works with Ch13s, but with our Ch7, once the 'Suggestion of Bankruptcy' notice went out to all of our creditors--including the IRS--the IRS sent us a notice suspending our payments until after our BK was over.

The IRS was--and is--our major creditor. Due to several bad decisions, we owed IRS about 30K in back taxes. We had been on a payment plan for about a year, then finally filed CH7. We had been trying for a Ch13, but my job loss in 2007 nixed that. The IRS sent the suspension notice. Then after we were Discharged, we got another notice from IRS that they would comence a Levy on our income for the remainder, and to get in touch with them.

We did, and worked out another repayment plan and have modified it a couple of times since.

The people we talked with have been very helpful and cooperative. Unlike the stereotype images that everyone seems to have, we have found the personnel we have dealt with to be very nice.

Good luck to you in your situation.

Hi Angelina,

I have back taxes that I am paying on now in my Chp 7. The Chp 13 is for my husband. To my understanding, he owes quite a bit 45,000, possibly more. This is a pretty substantial amount, at least for me it would be. I'm figuring it may be more beneficial to include it in his Chp 13 rather than doing it on the outside. BUT his wages are already being garnished so I'm not sure if they would be willing to work with him and a payment plan on the outside. I don't know.

In my Chp 7, I owe about 1530 and currently sending in 75 a month and have been paying this since the payment agreement was instituted. I'm actually continuing to pay it monhtly throughout my own Chp 7, although have been late every month by 2 weeks since I filed in Feb of this year. I called the IRS about a week before filing and explained to them what was happening; that I was aware that the debt would not be discharged; that creditors were not allowed to contact me during my BK case; BUT that I would continue to make manual payments throughout the course of my BK case regardless.

I'm doing the same with my car and I've reaffirmed it and have made payments on time throughout BUT I just would not be surprised if I get a letter after discharge or what have you saying they want the car back. Honestly, I don't think so. I have a Toyota and I imagine they are wanting as much money as possible because of the Toyota crisis and all the recalls and the major drop in sales. Of course, they will want to continue the contract plan at the current rates rather than taking back a car that has 100,000 miles on it and in fair condition BUT is starting to have mechanical problems with it. I'll see though.

I'm just curious with having such a huge amount owing to the IRS for my husband which would be more beneficial for him, either including it in his BK plan or attempting to do it on the outside of the Chp 13.

I hope all the best for you as well and thank you Cat for the response!!

[secondtimer]

In my case(13) my tax debt is a priority claim which means it will be paid before any of my other claims.

If there is only enough money to pay priority claims then my other claims (i.e. unsecured debt) will go away after the discharge.

Also penalties and interest stop after the petition is filed. I'm pretty sure penalties move over to the unsecured column.

Have I left anything out?

Hope this helps.

[backwoods]

We were in a similar situation to Jengo. Our BK was confirmed last October and the IRS notified the court/trustee that they wanted the amount we owed included in the payment plan. They even made sure they are getting paid first. We owed about $24K to the IRS.

We also owed $11K in back state taxes and that is also included in our plan. The taxes are a big reason we declared BK. The IRS was threatening to take legal action in the form of garnishment etc.

As it stands, the trustee has paid about 60% of the amount we owed Big Brother and they almost have enough in the account to finish the full amount off. So even if we mess up and get the BK dismissed a few months from now (not that I plan to) the Feds will have gotten their cut. I guess that's a nice goal to look forward to. At least they'd be off our case!

[Nomad]

We owed the IRS when we started our CH13, and they were a priority pay. They were paid off first.

[justbroke]

IRS taxes are priority debt and need to be paid inside the plan and through the Trustee. This allows you to pay 0% in interest over the term of the Chapter 13!!!!!

[JDW]

Just my experience... If you owe the IRS, you will not get your refunds until you are current. If you file a 13 and include your back taxes, they cannot "collect' outside of the plan, and you will get your refunds, as long as your 13 plan is current. This is from personal experience.

[knotholeone]

We did the same. Paid in our plan. The reason we had to do chapter 13 was because the IRS put a lien on our house. They can be nasty.

[backwoods]

They can be nasty.

That's the understatement of the century!

They still came after us even though my wife was voluntarily having some of her her pay deducted and sent directly to them to pay our back taxes-sent an order to my employer and made them change my witholdings to single/0 deductions. They managed to sneak this in between the time we filed for 13 and got confirmed.

Our BK attorney "subcontracted" a tax attorney to help us and the guy got my witholdings switched back. This attorney told me he's seeing the IRS pull all kinds of crazy tricks to recover $$ because the federal government is basically bankrupt and needs to maintain steady cash flow to pay fed gov't employees.

So if you owe money to the IRS, pretty much anything goes. If they do something illegal to you you can probably fight if if you have the resources but they'll keep trying different tricks until something sticks.

Remember this-the IRS is simply the collections arm of the Federal Reserve System. In my book, the only difference between them and any other collections operation is that the IRS is backed up by the threat of force (incarceration, loss of rights and even physical force in some cases) from our dear benevolent Uncle Sam.

[JDW]

I was on a repayment plan with the IRS, then filed a 13, and had it all rolled into my plan. Seems to be working for me, as I said I am getting my tax refunds with no problem. I am 3 years into a 5 year plan. My latest report from my Trustie showed I am still making payments to IRS.

[Jengo]

Thank you everyone for the response. I've been really busy dealing with my own Chp 7 and creditor's meeting, etc., and a very nasty crooked group of people that showed up at my meeting. Went well though, despite this person making a complete fool of himself in front of everyone.

The back taxes that my husband owes to my understanding is rather substantial and this is one of the main reasons he is filing for Chp 13 because it's spiraling out of control. They've already garnished his wages and has liens against him.

I read some place, not on this forum, but elsewhere that if you included the back taxes in a Chp 13 that they will be paid first above all others and this is what we want to happen. But I had read that as we all know IRS has a lot of power and can do really nasty things to an individual that doesn't pay. At any rate, I've read a few cases when their Chp 13 was finally discharged and any taxes over 3 years old were discharged the IRS still took action after discharge to reclaim the remainder that was discharged by seizing property, bank accounts, etc., and it was allowed to happen. Unless, the reason they did this is because that 3 year deal didn't apply to them because the taxes weren't filed in a timely manner. I'm not sure because it didn't state this in what I had read.

At any rate, reading here and what everyone is saying is that it is most ideal to include it in Chp 13 because they get paid first above all others. I've already told my husband this and he's already said that he plans to include it in his Chp 13 as well as opting for the option of the TT taking the payment directly from his checks every month ensuring better success of follow through with his Chp 13. He switched his with holdings to 0. He's determined to get the whole IRS deal cleared up and getting back on track.

Thank you everyone for the replies. It's helped a lot.

[tigergem]

I included a $2500 tax liability from last year in my Chapter 13. I had no penalties or interest assessed yet by the time of my filing, since I only received the first notice of a "possible" adjustment to my income tax return in October, and they didn't make the adjustment until December, they hadn't added any yet by the time I filed my chapter 13. It is my understanding that they will not be allowed to add any penalties or interest now because it is included in my bankruptcy. They aren't supposed to be breathing down my neck about this, although they have continued to send me notices and they will get paid without me having to worry them seizing my bank accounts or whatever.