IRS and preferential payment

[nazstar]

Ok. I know if you pay more than your scheduled amounts due, trustee can say it was preferential and sue to get the money back. but, does this apply to the IRS? If I just used my bonus to pay back taxes, how would the court get that back? They sue the IRS? Since this isn't dischargable in a Chapter 7, is it considered an exeption? Question also applies to student loans....

[FreshLikeADaisy]

I think you hit the nail on the head. I don't see how any payments directed toward priority, non-dischargeable debt could possibly be considered preferential: by law, the debts themselves are "preferential" and are untouched by bk. The amount would be up to you. As you can pay taxes for a year at a time, I would not mention the "schedule" and just pay the taxes for the year. Someone else might have something different to say, I don't have special knowledge here, but as you point out, the only alternative is for them to get upset about it and "sue" the IRS for recovery. Not bloody likely.

I honestly am starting to think overdue taxes are a great bk asset shelter. Seriously.

[lrprn]

No trustee in his or her right mind would take on the IRS as a preferred creditor. Any money you pay them is going to stay with them.

[nazstar]

Well, I googled this and found this answer on another legal forum. They said that the payment would probably be fine as long as there are no creditors with a higher priority than the IRS. This would include:
(1) costs of your bankruptcy filing (atty fee, etc);
(2) wages to employees (if you have employees working for you);
(3) payments to employee benefit plan (if you have employees);
(4) payments to farmers or fisherman
(5) if anyone bought something from you and made a deposit for it, and you didn't deliver the product
(6) alimony and child support payments that you owe.

Also, if I am making the payment more than 90 days prior to filing, it won't be considered preferential. I might just go ahead and pay this. It will be $263 less each month that we will have to shell out and since we are still negative every month, we would be ok.

[CATCHMEIFYOUCAN]

I know I definitely would be paying the IRS first above all creditors!

Good Luck ! Catchmeifyoucan

[CindyLou]

Nastar,
Just be sure that you will still pass the means test without this expense....I know you said you are in the neg, but is that in reality or on the means test?

[nazstar]

Nastar,
Just be sure that you will still pass the means test without this expense....I know you said you are in the neg, but is that in reality or on the means test?

I have to double check that. I know it's a definite in reality and to be honest, I think it's on the means test as well. When we file, we will be below the median income. For 6 months, we will have to push my husband's overtime down to zero and things will be tight. After we file, he can resume the overtime which will put us in the positive again.

Also, I won't be paying the whole balance with the IRS - just trying to whittle down the amount by a good chunk. We'll still be needing to pay the $263 a month - just not for as long. Hopefully, I can get it down to a point where our confiscated return and a year or so of payments will take care of the balance.

[nazstar]

OK. I looked into it. Because we are below the median income, we don't have to fill out parts IV, V, VI, and VII of the means test. But I did out schedule I and J and we have a deficit of about $1100 a month. That's mainly because I have a payment plan with the IRS for $263 a month, student loans for $76 a month, and our auto insurance is thru the roof $450/month. (hubby has a horrific driving record). The only expense that is higher than the average is our rent. The average is $1200 and we pay $1600.

Obviously, a deficit of $1100 each month is unsustainable. We will have to use my bonus to do certain things like prepay our auto insurance for 6 months, stockpile on groceries, pampers, try to pay off the student loan, a chunk of the taxes, etc. That should buy us another year or so. After the bk is over, hubby is going to start volunteering for overtime work, and start a side job. That is going to make up the deficit. But until we file, we have to make sure he doesn't earn too much to throw us over the median or else I'm afraid we'll be pushed into a 13. In 2009, he will no longer have to carry special auto insurance, so that will drop about $200 a month - my student loan should be paid off by then and HOPEFULLY, we won't owe the IRS by that point.