State didn't claim all taxes owed, now demanding payment

[matthewr]

In my Chapter 13 the State of Oregon failed to claim all the priority non-dischargable taxes that I was liable to pay. Now that I have completed Chapter 13, they have sent a demand for payment within 30 days of the balance. Is this legal? It's not clear to me how the State can claim 60% during bankruptcy and then surprise me with the final 40% right after I complete Chapter 13.

[despritfreya]

When did you file your case?

What tax years are involved?

What type of tax (income, sales, payroll etc.)?

When did you file the returns?

Where the returns audited and, if so, when and when were the audits finalized?

Des.

[AngelinaCat]

Welcome to the forum, Des is one of our best posters, and is a practicing BK attorney. You will get some good advice here.

In our case, we filed a Ch7. We had a payment plan in place with the IRS before we filed. Once we filed, we were notified by the IRS that our payment plan was in abeyance for the duration of our BK. Once we were discharged, the IRS again contacted us about renewing our payment plan, which we did. Hopefully we will be through with the IRS in about another year.

BTW, we were an Asset Case, and the monies that the trustee collected from us went to our major creditor, which was the IRS.

Due to a lot of stupid mistakes on our part, we owed the IRS back taxes for four years. We had hoped to be able to discharge one of those years, but again, due to some stupid mistakes, we were unable to do so.

Good luck with your case.

[HHM]

When did you file your case?

What tax years are involved?

What type of tax (income, sales, payroll etc.)?

When did you file the returns?

Where the returns audited and, if so, when and when were the audits finalized?

Des.

Ditto, to even begin to answer, need to know the above...

However, in general, if a debt is non-dischargeable under BK code section 523, it remains so (the chapter 13 super discharge is mostly gone). As such, the failure of Oregon to file a POC does not suddenly make that debt dischargeable. So yes, they can collect after the BK is discharged. Generally, the debtor, and debtor attorney, need to monitor the proof of claims, and if a priority claim, like a taxing authority fails to file the POC, YOU file one on their behalf...and if you are uncertain about the amount, you can file a Section 505 Motion to Determine Tax Liability.

Frankly, if you had an attorney, and this wasn't done, that is borderline malpractice.

[matthewr]

When did you file your case?

August 2006 and the plan was confirmed December, 2006

What tax years are involved?

Q3 and Q4 2005, Q1 and Q2 2006

What type of tax (income, sales, payroll etc.)?

Payroll

When did you file the returns?

Prior to the plan being confirmed. I think prior to filing.

Where the returns audited and, if so, when and when were the audits finalized?

No audits have been performed to my knowledge.

The State made a priority claim of $28000, all which was paid during the 60 month plan. Now, five months after the case has been completed I get a letter demanding payment for $14,500 more all due in 30 days.

[matthewr]

We did have an attorney and I have no clue if he took those steps, but I don't believe that he did file the a 505 motion.

Since the debt is non-dischargable, I guess my best bet is to negotiate payment terms. It seems unfair they can charge me interest since the State did manage to file for $28000 and has acknowledged that payments were being made during the bankruptcy.

[HHM]

Okay, so there is NO WAY those taxes were discharged, payroll tax is non-dischargeable, period.

What you may be being billed for is post petition interest and penalties. YES, on non-dischargeable payroll tax, interest and penalties continue to accrue DURING the chapter 13.

Bottom line, you will need to work something out and pay the debt...sorry.

The 505 motion is not always necessary, in fact it is rare that it needs to be filed. Whether the chapter 13 plan can pay for the post petition interest and penalties depends on many factors in the plan, so at this point, tough to say whether your attorney actually did anything wrong...except not tell you what was going to happen.

[matthewr]

The funny thing is, when I filed estimated $40,000 was owed to the state which shows up as "scheduled", however the state only "claimed" $28,000, which is all documented in the trustee report. It's amazing to me they didn't bother to claim everything I owed. They've known about the debt for 7 years and never sent a single notice.

[keepsmiling]

Matthew, welcome to the forum.
I hope a solution can be worked out. The whole thing just stinks and doesn't seem right at all.

[Flamingo]

My question is if you knew you owed $40,000 and only saw $28,000 listed as the amount on your Chapter 13 as to state taxes owed, did you question that amount? Or is there other wording in your Plan to indicate that amount would be paid out over your Plan with the balance due at the end of your Chapter 13?

[Carter]

The same thing happend to me in Virginia. I was told to wait until discharge and then contact them with a payment arrangement. I will simply just take my trustee payments and re-direct them to the taxes until paid.

[despritfreya]

I concur with HHM.

The obligation you are dealing with is, at least in part, interest that accrued during the course of the 13. See 11 USC 1322(b)(10). Back in 2006 your attorney probably explained to you that unless you were a 100% plan the interest running on the trust fund (payroll) tax would continue to accrue, would not be paid and would survive the bk. If you were a 100% plan, although not required, you would have been allowed to provide for the payment of interest on the withholding tax claim.

Having said the above, I think you need to look into the amount due. I cannot imagine that the interest accrual on a declining principal balance is over $14,000.00. However, the amount might cover the interest accrual and the tax that was not listed in the claim. Such taxes do survive the bk. Please review 11 USC 328(a)(2) which holds that taxes under 507(a)(8)(c) are not discharged. 507 (a)(8)(c) covers withholding taxes.

You need to get an accounting so that you know what you are dealing with and then get yourself on an installment plan assuming the state agency has one.

Des.