Owing money to IRS after filing

[muzzey58]

I was wondering if anyone has experienced this or heard about a new rule regarding the IRS and chapter 13 cases. According to my local IRS insolvency agent, a debtor in an open chapter 13 can not incur debt from the IRS anymore. That's means if you owe the IRS anymore than $600 they will try to
have your case dismissed.

My attorney was even surprised about the new regulation. She told me that she, my Trustee were never told the new regulation and didn't even know that it existed until Monday. She is contacting an IRS attorney to clarify the regulation. Have you ever tried navigating the IRS website to find out information about any specific question? It's absurd the amount of regulations
that the IRS has.

I've been in an open chapter 13 since 2006 and my case is almost done. I have about 1 year left to go. I've dealt with modification, buying a car in a bankruptcy, and just trying to survive. My payments are on time and have never been late. My case has been stable now for over 2 years. I'm hoping that I can end this soon and not in dismissal. We only owe the IRS $1300.
I wish someone would have told us about the new regulation. Like my husband said he could have borrowed money from his Dad. I was hoping to one of the few who makes it to a successful end.

[Billssuck]

Wow...I haven't heard about this. I owed $1,100 this past year but decided to surrender our house (loss of income after filing ch13) and used one month's mortgage to pay the IRS before April 15th. So we are good with the IRS I assume since we don't owe them anything now. What is the logic behind that new rule? Take us down more while we already have had it hard and are just trying to rebuild our lives...doesn't make sense and I hope the IRS agent is wrong...

[NoTomatoCan]

I thought you owed more than $1,300? Wasn't it something like $6,700 in 2007 and $4,200 for 2008?

I was under the impression that so long as you didn't include IRS debt in your BK then they would work with you on a payment plan.

What is the IRS publication or regulation number that discusses this? Is it published somewhere? That seems a bit extreme, since so many things change in BK that I imagine many folks see a change in what their tax returns look like, particularly after year 1.

[momofthree]

I was under the impression that so long as you didn't include IRS debt in your BK then they would work with you on a payment plan.

Ditto. And what if you owe them but pay it off immediately from your emergency savings? It seems ridiculous for them to try to dismiss every ch.13 debtor simply because they didn't have enough money withheld from their pay...

We expect to owe next year, but are saving up cash so that we can pay it off when it comes due. Do we need to discuss this with our attorney? We've never owed taxes in the past, but with stripping our 2nd mortgage and getting a modification on our first, we think we'll owe....

[lrprn]

Before we all go off the deep end here, take a look at the IRS's webpage for regulations they follow when a filer in Ch 13 owes taxes before or during their Ch 13 plan - http://www.irs.gov/irm/part5/irm_05-009-010.html

Scroll down to the 5.9.10.9 (05-20-2008) Postpetition Tax Liabilities section and read through it. According to this source (and it's the IRS itself), it states that, "Postpetition tax liabilities are handled in various ways by Insolvency groups throughout the country. In all cases ACS caseworkers or revenue officers should contact a CIO liaison to confirm the actions they are contemplating against debtors in bankruptcy are appropriate."

It seems that local IRS practices control what the IRS does when Ch 13 filers owe post-filing taxes that cannot be paid.

If you can pay your post-petition taxes, then the IRS cannot select dismissing your 13 as an option. You've paid the taxes owed. The IRS would have no grounds to dismiss. Now if you owe taxes after filing and can't pay them, then that might be another matter.

In case there was another online reference that stated otherwise, I did an extensive search. I can't find any source (reliable or otherwise) that states that owing taxes after filing a 13 automatically leads to a dismissal.

Muzzey, if you can, please ask your lawyer where the new IRS rule regarding Ch 13 filers and post-petition taxes can be found. It may be that this is a local or state-based decision, not something that's happening everywhere.

So folks, no panic just yet, ok? Let's get a reliable, second confirmation that verifies this new IRS "rule" first.

[muzzey58]

I will contact my lawyer by email tonight to see if she can find the law that this
IRS agent is talking about. She told me that she was not aware of such a law. My attorney was a chapter 13 Trustee for a while. So I believe that she is well versed in
bankruptcy law. She is also baffled by this new "rule". Once I find out from her then I will post her comment. Thanks for the great help everyone.

[newbie2]

Before we all go off the deep end here, take a look at the IRS's webpage for regulations they follow when a filer in Ch 13 owes taxes before or during their Ch 13 plan - http://www.irs.gov/irm/part5/irm_05-009-010.html



So folks, no panic just yet, ok? Let's get a reliable, second confirmation that verifies this new IRS "rule" first.

Ditto. Muzzey owed taxes for 3 consecutive years after filing the Chapter 13. I am sure this plays in to things much more than any new ruling (if there is a new ruling). It could very well be that the IRS is now saying "Enough" with the post petition taxes due. No need to scare everyone.

[muzzey58]

My attorney spoke to the IRS attorney today and the decision is at the discretion of the insolvency (IRS) agent. This same agent has been giving problems to us since we filed in 2006. I made an error on my 2000 tax returns before I got married. I was caring for a handicapped sister and was able to claim her on my taxes that year. This representative said that she needed proof that my sister was disabled. She thought I was trying to defraud the government. I had to contact her doctor and her agency for the disabled back in my home state for proof of her disability.

My sister is mentally disabled. She worked at a sheltered workshop and made $1.00 an hour 30 hours per week. It was a place she could go more to socialize then actually working. She made $600 that year for income. So this same IRS agent is causing problems again. I remember when we were in our first meeting with the Trustee that it seemed like she was in every single meeting with the clients. My attorney said that she will fight the IRS on this one. Like she said, we're successfully funding our case. We've reduced the amount owe to the IRS from $6700 in 2007 to $1300. I know people have said that it's because of prior years that the IRS agent is making a stink.
My Trustee understands our problems. He told my lawyer that since this case is almost done that there is room in our plan for the additional money. He said that we could have make payment arrangements with the IRS outside the plan.

So don't anyone panic here. It's just this case has been messed up since it was filed. That's why I say you have to get a good attorney and be proactive on your case. It was at that time we trusted our attorney to be giving us good advice. We had begged our former attorney to modify the plan not to include my income since I hadn't worked in over 6 months at the time of confirmation. He wouldn't return any phone calls, nor respond to certified letters. We basically were helpless at that time. It was too late to change the withholding allowances for 2007 when we realized the mistakes on our plans.
In 2008, we fired him and hired my present attorney. It took 4 long months to have the plan modified not to include my income. We then changed our withholding allowances which resulted in the $4200 for 2008.
Again, in 2009 we modified the withholding allowances. It looks like finally this year we will be on track and owe nothing to the IRS. It's just every case is different. I'm thinking that maybe the current plan should have been dismissed all together and started fresh. But like my attorney said we are on track and the plan is being funded. We have over $3000 at the moment on hand from the Trustee for payments.
It's all bureaucracy in motion.

That's why I say when I respond to questions to be proactive in your case.
Keep your head above water. In my case it's almost over.

[starr4law]

This is all very interesting to me. In this district, you are not allowed to incur any debt, including tax debt, of any substance during your Chapter 13 plan. To do so can result in a) needing to modify your Plan, or b) dismissal of your plan. Usually, if the debt is less than $600, the Trustee just says go ahead and pay it. If it is more, then a) or b) comes into play. The thought process is that in a Ch 13, you are supposed to be contributing all disposable income into the plan - therefore, in reality, you would never have enough cash on hand to pay anything larger than $600, nor would you be able to make additional monthly payments (like to the IRS) on a debt. If you have that much cash laying around, then the plan isn't computed properly.

Here, Debtors MUST adjust their withholdings to be accurate. In fact, debtors are strongly encouraged to do "fake tax returns" around the middle of the year (they don't have to turn them in or anything) to make sure they are on track. Usually, if a debtor goofs the first year of the plan, modification will solve the problem (although the payment has to be bumped because none of the previous creditors can be "harmed"). After that, it gets tough . . .

Must be different rules in different districts?

[Billssuck]

starr4law: I understand your thinking here. In our district, we can't incur a new debt of over $1,000 without trustee approval. WRT to the six month fake tax return, this really is a good idea and I did one just a few months ago when we decided to surrender our home (modified our ch13) due to loss of income after we filed. I have adjusted our withholding to account for not having mortgage interest itemized deductions and a few other life changes that will affect our return next year.

[muzzey58]

Our former years, 2007 and 2008, debt for the IRS was put into our plan. My attorney didn't even know of the new regulation from the IRS. This is bad for the common debtor in a chapter 13. We/Attorney was not informed of any new regulations of the IRS. If there are any new laws or regulations, then it is the responsibility of the Trustee to inform both the attorney and client. Just like in laws that regard transportation, etc. The DMV has a responsibility to inform citizens or drivers that there are new laws on the books. The DMV will usually put out a notice with your car registration renewal or post it in the papers. Then the IRS should inform chapter 13 clients that there are new regulations regarding owing taxes. It shouldn't be if you make a mistake then you're done.

I think that's why so many people end up defaulting on their chapter 13 bankruptcies. The success rate for chapter 13 is ridiculously low. I believe it's somewhere around 22-25% of all chapter 13 cases are discharged nowadays. In 2005, congress decided to overhaul the bankruptcy laws. Chapter 7 bankruptcies have a very high discharge rate vs. the chapter 13 cases. There are so many regulations which are just red tape.
It's like you are in a bubble for 5 years of your life. Also, most people in a chapter 13 presently should be in a chapter 7.

Chapter 13 was designed for debtors to "keep" property. Chapter 7 was meant for debtors to discharge debt and start over again. I think that's why so many chapter 13 are never discharged.

Congress needs to revamp these ridiculous laws again. It shouldn't fall on the backs of middle income Americans! Should my husband quit his middle income job and work at McDonald's for one year just to file a chapter 7? Most people don't realize that having a fourth of your disposable income is ridiculous to pay old debt. I came from PA that didn't allow creditors to sue over credit. Credit has messed up our country really bad.
My husband and I have been in this bankruptcy for almost 4 years. We had bad legal advice at the start of this case. The current case should have been revamped before the confirmation as my husband and I wanted.

We're almost done with this case and only want to finish it. I believe that more and more cases like mine will continue unless credit laws change in this country. One lesson I'm grateful for is that I will never use a credit card ever again. I never used credit only to buy a car before I got married. I paid cash for everything. My husband was unfortunate to lose his job in 2002. He was unemployed for almost 15 months. He lost his home because he couldn't keep up the mortgage payments due to the unemployment.

I haven't been able to post anything the last few days. My husband lost his father on Saturday night. He died from injuries that he sustained in a car accident. My father in law had a heart attack while driving his car.
So worrying about the bankruptcy is the last thing on our minds. We realize that what really matters in life is family. Things don't matter and problems will go away eventually. It puts light on the important things in life.

One way or another our problems will get solved. We have a great lawyer who was a former Trustee. She has helped us through this mess. Somehow this will get behind us. All that matters is that I have a wonderful husband and family. Thank you all for your great answers. I really appreciate your thoughts and help.

[SMinGA]

I would say its the job/responsibility of the attorney to stay up to date on what is happening in terms of law/policy changes.

Condolences in the family loss - glad to see your priorities are in order. (Family first...) This too shall pass!

[muzzey58]

Thank you for your condolences. Life is getting back to a little bit of a normal routine.
The holidays will be tough though. We use to go to the holidays at my father in law's home. My mom and my husband's mom and dad are all gone. My mom died in 1989 at the age of 56. My husband's mother in 1998 at the age of 67. Most of my family is scattered. We have great friends which are much like family and I have my sisters. I'm not worried about the bankruptcy right now. It's remembering my father in law during happy times. This is what matters in life, not money.

[parsoc48]

This is the 2nd year we've had a payment plan with IRS, no problems and no questions re the 13. I will be adjusting our withholding however, as know we can't go into a 3rd year of repayment!