Still pay IRS monthly payment plan for back taxes but stop credit cards?

[tg16]

Since my spouse and I file joint taxes and she will not be filing chapter 7 with me, should I continue with our IRS monthly payment agreement, while stopping payments on my credit cards? I don't want these IRS payments be redistributed by the trustee to all creditors that I list in my filing.

[justbroke]

The IRS is a "special" unsecured creditor which enjoys classification as priority (unsecured) debt and/or just plain unsecured debt. It depends on whether there are penalties and interest accrued and how the IRS classifies your past-due taxes. The IRS enjoys this "priority" status and is paid before all other unsecured creditors. IRS priority debt "must be paid" in the before any general unsecured creditor it paid.

The IRS will automatically cancel any payment agreement once you file. You cannot get back into the payment agreement (OPA or other manner) unless and until the case is dismissed, discharged or closed (whichever comes first).

Are you expecting your case to be an "asset" case?

[tg16]

No, I don't believe this will be an asset case. Wondering if I should suspend IRS auto deductions from my checking account as I stop paying all other secure debt..

[justbroke]

That's up to you and you should base the cessation of IRS payments on when you're going to file. I can't remember if I stopped my OPA before filing or not, but when the IRS processes the bankruptcy notification, it should automatically stop.

[tg16]

But would those monies paid to the IRS be clawed back and be redistributed among all creditors? If that's the case, I better stop the payments to the IRS

[justbroke]

I have never read about IRS debt being clawed back. The IRS is a "priority" creditor. So long as the IRS' claims are greater than any of the other claims, it's not worth clawing it back and then redistributing it... back to the IRS. I had zero issues with this. Again, it is likely because the IRS has priority over all the other unsecured debt.

Example, you owe the IRS $10,000 of non-dischargeable taxes. You also owe $2,000 in penalties and interest. Your unsecured debt (not including the IRS) is $50,000.

Even if you paid the IRS $5,000 within the clawback period, the IRS still would have a priority claim of at least $10,000 (the $5,000 you paid plus the $5,000) still owed, plus a "general" unsecured claim of $2,000. There is no reason or purpose to try to claw back the money because it would just go right back to the IRS as they have priority over all general unsecured creditors.

[tg16]

Again, thank you