Introduction

[CtheLight]

Hi All,
Just a quick introduction and hopefully we can get some needed guidance on what we can do.
We are on the last 17 months of our 60 month plan.
The main reason for filing Chapter 13 was taxes. All $102K of them.
Because of the amount of tax we owed, the IRS would not allow us to keep up payments on our vehicles. They wanted our full disposable income.
Since we would have lost our cars, we decided the best route was to file Chapter 13.
All was going fine until hubby lost his job and took a much lower paying position that paid about half his original salary. This paired with the 3 months of work that he missed looking for a new job, we used up our stays and have the lowest possible payment of 4K per month.
Right now, our vehicles are paid off and all that is remaining is 70K of taxes.

We are barely scraping by and with some miracle income that seems to come right at the nick of time, we have made it this far but I’m wondering when our luck will fail and we’ll not be able to complete our plan.

There is some credit card debt that will not be paid when our 13 discharges, but I’m wondering, because the majority of the debt left is tax related, is there anything that can be done to lessen our burden monthly?
Would, for example, the IRS take an offer in compromise at this point, or …?

Our lawyer isn't the most responsive but have managed to keep us going. They have said there is nothing more that they can do for us.

Any input would be greatly appreciated.
Thank you,
Andrea

[LadyInTheRed]

Welcome to Bkforum!

I don't know whether the IRS will accept an OIC while you are in a Chap 13, but I do know you have to have cash to put towards the OIC and the IRS must be convinced that they have no reasonable expectation of doing better with other collection efforts.

I have some thoughts, but I do not know all of the possible pitfalls of what I am suggesting. Hopefully, this will help in a discussion with your attorney about your options.

Because there is no way to lower your plan payments below what is required to pay off the taxes and pay your trustee fee, your options if you can't get an OIC or complete the current Chap 13 plan are to convert to a Chap 7, if you qualify, or assuming you are not under a wage order, stop making payments and let your case get dismissed. Even if you have a wage order and don't qualify for a Chap 7, I think you can convert to a 7 and then your case will eventually get dismissed if you can't get a Chap 7 discharge.

Once your case is dismissed or you receive a Chap 7 discharge, you would start negotiating with the IRS for a payment plan.

The credit card debt will also have to be dealt with. Your statement regarding the credit card debt is confusing. Do you mean that your plan will pay nothing to the credit cards, but that those debts will get discharged if you complete the plan? Or are those debts not dischargeable for some reason? If the debts are not dischargeable, they aren't much of factor in your decision, except that you will have to deal with them sooner than if you finished your Chap 13.

If you can't get a reasonable payment plan with the IRS after a dismissal or Chap 7, and/or you can't manage any remaining debt, you can file another Chap 13 and spread the remaining tax debt over another 5 years. If the 2nd Chap 13 is filed within a year of dismissal of the first one, the automatic stay only lasts for 30 days unless you successfully petition to extend it. If the automatic stay isn't extended, I do not know whether the IRS would pursue collection efforts.

Can you qualify for a Chap 7 discharge? What is your household size and income?

[justbroke]

I like the way LITR thinks, and you should certainly run this by your experienced attorney. There are some strategies here which could include dismissing the Chapter 13 and possibly refiling at a later time. If you refile at a later time, Chapter 7 or Chapter 13, you may then have some "dischargeable" tax debt and that could lessen your burden. These are strategies that you will need to examine.

Please realize that serial filings require special care and you will need an experienced attorney to navigate the minefield related to serial filings.

As a side note, it would be a shame not to make it to 60 months and be rid of all that tax debt. It's interest free during your Chapter 13 and that is saving you a LOT of money.

[LadyInTheRed]

As a side note, it would be a shame not to make it to 60 months and be rid of all that tax debt. It's interest free during your Chapter 13 and that is saving you a LOT of money.

Good point. If there is anyway to stick it out and complete your plan, you should. Are there any options for bringing in extra income?

[CtheLight]

Yeah. Since I'm making the bare minimum plan payment that goes to pay the taxes, the credit card will be discharged.
Definitely don't qualify for Chapter 7. Bay Area wages and both of us working.
If the 4K could go down to $3500, it would be so much easier. But I guess this isn't about "easy".
We are almost there and I keep hoping our luck will hold...
Thanks for the responses!

One other question... When should we expect to receive our pink slips for the vehicles? After the plan is paid off or when the cars are paid through the plan? Do they hold them waiting to see if we will drop out of the 13?

Thanks again!

[justbroke]

There is no way to really tell when you'll receive the title for your vehicles. Many lenders will automatically send them once they are paid (if the vehicles were not "valued" or crammed down in the bankruptcy). Others may wait until discharge so that the unsecured portion of their loans (the "crammed down" portion) is actually paid in full or discharged.

[LadyInTheRed]

Definitely don't qualify for Chapter 7. Bay Area wages and both of us working.

You may have Bay Area wages, but you also have Bay Area cost of living. Do you realize that whether you are above median income is only the first step in the means test? You can have over the median income and pass the means test. While the median income test is the same for all Californians, the local standards for housing and utilities are by county and have huge variations. The difference between allowances in San Francisco and across the bay in Alameda County is $400. Do you know for sure that you don't pass the means test? I don't want to get your hopes up too high. If a plan payment of $4,000 is really feasible or a $500 decrease would make it feasible, then you probably don't pass the means test. So many people think you can't qualify for a Chap 7 if your income is over median and I want to be sure you really don't qualify before you dismiss that as an option.

[CtheLight]

Would a chapter 7 require us to sell our property?

Also, I'm wondering if the IRS will ask for us to pay taxes on the discharged portion of the chapter 13.
The credit card bills, there were two cars that got crammed down, and a portion of our taxes that was forgiven... Will this be taxed somehow?

[justbroke]

Would a chapter 7 require us to sell our property?

Not necessarily. You would need a lot of equity that is not protected by an exemption. I'm not advocating one of California's two exemption systems (System I and System II), but you choose the exemption system based on what protects the property that you want to keep.

Also, I'm wondering if the IRS will ask for us to pay taxes on the discharged portion of the chapter 13.

No. Anything discharge is not taxable. If you do end up with IRS Form 1099-C (Forgiveness of Debt) being issued, you just file an IRS Form 982.

The credit card bills, there were two cars that got crammed down, and a portion of our taxes that was forgiven... Will this be taxed somehow?

Not after discharge. Please remember that a discharge gets ride of your liability as well as your liability to pay taxes on the discharged portions. What would be problematic is that your cram downed cars would need to be "valued" again in the Chapter 7 and you would need to either redeem, reaffirm or surrender those vehicles (the downside of converting when you have crammed down vehicles in a Chapter 13 and convert LATE in that Chapter 13 to a Chapter 7).

[LadyInTheRed]

For info on California's exemptions, go to http://www.nolo.com/legal-encycloped...ty-assets.html

[CtheLight]

Wait... Since the remainder of my Chapter 13 is taxes, can that be discharged in a Chapter 7? I had heard taxes weren't dischargable?

[LadyInTheRed]

No, your taxes would not be dischargeable in a Chap 7 (except perhaps some interest and penalties), just like they are not dischargeable in a 13. If you converted to Chap 7, that would take care of your dischargeable debt and then you could try to work out a payment plan with the IRS where you pay them less than $4,000 a month. If you can't work out a payment plan with the IRS, then you could file Chap 13 again which would give you up to 5 years to pay off the tax debt, making your plan payment more manageable.

[justbroke]

Wait... Since the remainder of my Chapter 13 is taxes, can that be discharged in a Chapter 7? I had heard taxes weren't dischargable?

Priority tax debt is never dischargeable. However, general unsecured tax debt is dischargeable in both Chapter 13s and Chapter 7s.

I think that people get confused about the "priority" versus "general" unsecured tax debt.

There are some peculiarities. Your tax debt "could" be subject to discharge but your Chapter 13 "tolls" the time period as far as the dischargeability for the tax debt. It is unlikely that you could immediately refile since the tolling for taxes would include the time while you were in a Chapter 13. My point was really that if you already had "dischargeable" taxes that you were paying as general unsecured tax debt in the Chapter 13, re-filing under Chapter 7 would make that "general unsecured tax debt" subject to discharge because the tolling would not have affected the taxes anyhow.

A Chapter 7 will not rid you of any priority tax debt (and the penalties and interest on that priority tax debt), but can rid you of nonpriority (income) tax debt that meets the criteria.

Since you have significant taxes at issue, I would review everything with my attorney and find a strategy for you. Given that you are so late in your plan (17 months left out of 60), there is no way for us to tell which portions of the tax claim you have paid (priority/nonpriority).

[CtheLight]

Ah, I see.
Yes, the 70K is priority. I talked with my husband after all of your replies (thank you!) and we're just going to stick it out as long as we can. If something happens we'll deal with it then. They can't get blood from a turnip!
Thanks again!