Can't set up Tax Payment Plan until Discharged?

[queenfluff]

I owe on both my taxes - fed and state. When I did my taxes, which I had to have done before I filed, I asked for payment plan (I e-filed). Anyhow, haven't heard anything back from feds yet but for my state they sent me a letter that said how much I owed and a payment thingy but said I could set up payment plan online which I did.

Today I get email that says that since my account (which account I don't know) says filing for bankruptcy I can't set up a payment plan until after I am discharged. Anyone know why it should matter and why I have to wait?

I dont want to pay the whole thing ($503)- than I would have no money left. But should I still send in some sort of payment (like $20)to "hold them off" until I am discharged? My discharge won't be until around August 23 (if it is on time).

I think if I don't pay them anything I get a big fee. I have never owed on my taxes before so this is all new to me.

[justbroke]

You have to wait, because all creditors, including the U.S. Government and any State, are precluded from "attempting to collect" while the Automatic Stay (imposed by 11 USC 362) is in affect. That essentially means that your Bankruptcy case makes everything stop and until your case is closed (in a Chapter 7), they have to wait!

It's no big deal. I'm unsure, however, if the Stay tolls the accrual of interest. You'd have to ask your lawyer about that.

[Bankruptcy20]

First off, let me say that I am starting to research this very same topic. So, this may be very wrong, but let me put out a framework for how I think about this. And, feel free for others to correct me where I am wrong.

1) You can do anything with the federal or state BEFORE filing
2) But, the assessment of tax (tax authority official stamp of when and how much they view your tax liability to be) AND the compromise/installment plan need to be concluded BEFORE filing
3) if you are muddling with the tax authorities, and you file, they will STOP their discussions with you. So, point being there is a big "rat race" of what to do before filing and whether it is feasible to get it all done with the tax authorities
4) if you don't get it all done before filing, during the long BK process, interest, late payment penalties, late filing penalties (all 3 accrue nastily)
5) I cannot recall here exactly, but I think Chapter 13 undoes the two penalties but interest keeps accruing. Chapter 7 does nothing if these taxes are non-dischargeable (e.g., less than 3 years old), so if you could have handled all this before Chapter 7, and don't, you get screwed
6) taxes are priority claims but not secured, so if you don't have any secured debt, any payments received by the trustee will go to taxes first anyways (after his cut, of course)
7) Here is where I am fuzzy on, if you have an installment plan completely approved before filing (you don't have one it sounds like), can you keep paying it with the cash that is the BK estate that is time stamped on the date of your filing? I'm not sure. I know the tax authorities will cease talking to you if you file, but that's if your OIC/installment plan was not yet approved... if it was, there is an interesting question of how you pay. I guess you can pay with post-BK estate cash, which the trustee can't touch (assuming not a lottery win, or divorce proceedings, and other such issues).

OK, I probably made you even more confused, but that's how I think about it above. Hope others who know this stuff definitively can chime in!

[queenfluff]

Thanks justbroke. I guess that makes sense - I think I was thinking that since I can't discharge my taxes that the whole thing doesn't fall under the "stay" - I thought that was just for the creditors you put on your paperwork.

So, does this mean that if they can't collect from me that I don't have to pay them until after my discharge? My lawyer did tell me not to pay at the time and pick a payment plan but I was figured I would have to start paying something once they sent me a bill.

Yeah, I am worried about that fee though.

[justbroke]

5) I cannot recall here exactly, but I think Chapter 13 undoes the two penalties but interest keeps accruing. Chapter 7 does nothing if these taxes are non-dischargeable (e.g., less than 3 years old), so if you could have handled all this before Chapter 7, and don't, you get screwed

Chapter 13 will stop new interest from accumulating, so long as your case is active. It also separates the penalties from the taxes and interest charged prior to filing.

Chapter 13 treats the pre-petition penalties as regular (general) unsecured debt, as well as the interest accrued on those penalties!!! The pre-petition tax liability with interest (without penalties) are treated as priority unsecured debt.

6) taxes are priority claims but not secured, so if you don't have any secured debt, any payments received by the trustee will go to taxes first anyways (after his cut, of course)

This depends! It depends on whether they are entitled to priority status. As stated above, certain parts of taxes are not priority by definition. Also, "old" taxes (which were due or assessed without penalty 240 days before filing), are not entitled to priority.

Other than those updates, you have done a great job summarizing!

[justbroke]

So, does this mean that if they can't collect from me that I don't have to pay them until after my discharge? My lawyer did tell me not to pay at the time and pick a payment plan but I was figured I would have to start paying something once they sent me a bill.

When your case closes, you can resume a payment plan you had before, or ask for a new payment plan.

[queenfluff]

First off, let me say that I am starting to research this very same topic. So, this may be very wrong, but let me put out a framework for how I think about this. And, feel free for others to correct me where I am wrong.

1) You can do anything with the federal or state BEFORE filing
2) But, the assessment of tax (tax authority official stamp of when and how much they view your tax liability to be) AND the compromise/installment plan need to be concluded BEFORE filing
3) if you are muddling with the tax authorities, and you file, they will STOP their discussions with you. So, point being there is a big "rat race" of what to do before filing and whether it is feasible to get it all done with the tax authorities
4) if you don't get it all done before filing, during the long BK process, interest, late payment penalties, late filing penalties (all 3 accrue nastily)
5) I cannot recall here exactly, but I think Chapter 13 undoes the two penalties but interest keeps accruing. Chapter 7 does nothing if these taxes are non-dischargeable (e.g., less than 3 years old), so if you could have handled all this before Chapter 7, and don't, you get screwed
6) taxes are priority claims but not secured, so if you don't have any secured debt, any payments received by the trustee will go to taxes first anyways (after his cut, of course)
7) Here is where I am fuzzy on, if you have an installment plan completely approved before filing (you don't have one it sounds like), can you keep paying it with the cash that is the BK estate that is time stamped on the date of your filing? I'm not sure. I know the tax authorities will cease talking to you if you file, but that's if your OIC/installment plan was not yet approved... if it was, there is an interesting question of how you pay. I guess you can pay with post-BK estate cash, which the trustee can't touch (assuming not a lottery win, or divorce proceedings, and other such issues).

OK, I probably made you even more confused, but that's how I think about it above. Hope others who know this stuff definitively can chime in!

Bankruptcy20, here is my situation:

I started doing my paperwork right around the time taxes were due (right before April 15 deadline - in fact, I signed my papers on the 13th - but my case didn't get filed until 30th). So, I had to have them filed before my case could be filed or even before I signed my paperwork. So, they were filed by the 13th. I knew I was going to owe and my lawyer knew this. He said don't pay anything and save my money for my life expenses and get payment plan.

I e-filed both of my taxes and asked for payment plans for both. Other day I got letter the payment letter from state (Wisconsin) or set up payment plan. I e-filed for payment plan the other day and got email about BK and not setting up plan until after I am discharged today.

So, no, I didn't have a payment plan set up before I was filed and when I filed my taxes they didn't know yet I was filing for BK.

I don't really care if I have to wait - I am just hoping I don't get charged a fee - I mean, if they technically can't collect from me than can they charge me fees for being late. Do I still have to pay something until the payment plan is set up? The voucher of course wants the whole amount.

I guess when they send out that letter they didn't know I was filed yet - although I was.

I guess this warrants a call to the lawyer.

OH, FYI, I am a no-asset Chapter 7.

[queenfluff]

When your case closes, you can resume a payment plan you had before, or ask for a new payment plan.

I didn't have a payment plan before. This would all be new -for my 2008 taxes that I just filed. My first time doing this.

[Bankruptcy20]

To your question, it seems to me that you are going to get hit with the penalty. Or, here's a crazy idea: try to find some non-exempt assets that the trustee can find in your no-asset case to pay off the tax authorities! Those liabilities are going to stick with you post discharge anyways.

For others who read this post later on, here are my own lessons learned.

1) think carefully about the timing of tax filing and BK
2) if you need time before April 15, file an extension. Remember the federal and state are separate
3) technically, that extension delays the penalty of filing (very expensive 5% per month!), but some tax lawyers will say that is only legitimate if you owe the IRS nothing or less than 10% of what is delayed... so they could try to claw back the penalty later on
4) think about splitting your tax year into a short and long year (I forget the code, but you need to make the election early... so treat Jan to April as one tax year, and May to December as another tax year... this election makes a lot of sense if you owe in one part and are going to get a refund in another... there's a lot of strategy behind this, but oftentimes people who hit BK have a sudden change in income, etc, which may be appropriate for a split tax)...

This thread is not the place for discussing all this, but I'm just posting the things I wished someone told me about months ago! Hindsight, etc, etc, perfect...

[queenfluff]

It doesn't seem fair that I get penalty - I feel that I paying penalty enough here - The taxes I owe are just the 10% penalty for my early 401K withdrawal. I didn't work all of last year so that is pretty much it (yes, I know it is income).

Obviously, I have no money or I wouldn't be filing for Ch. 7. I would be willing to pay a small amount every month until I get the payment plan going. $20 would be the most I could swing. I don't have much money left and no job. I guess after the 341 - I don't have to be as careful with my money. (If I run out of money for necesseties, my parents will be giving me some cash - what choose do I have right? I have to eat).

There is no way I could have planned in advance for this. It is just the way things went that I had to start my filing around tax time. If I had done the extension, I would have had to delay my filing and the longer I put this whole thing off - the longer my life stays on hold. And than I REALLY would have been broke - I wouldn't have had even $20 to give them. I want this to be over with so I don't have to watch my P's and Q's sort of speak and I can be discharged and get on with my life - get a job and not have to worry about them wanting to grab any money I make.

All that stuff you mentioned about half year taxes - way over my head. Next to the law and BK, taxes are the most confusing thing to me. My BK wasn't "pre-planned" like many people. My lawyer said I filed that the right time - he didn't even mention filing an extension.

I email the person back who sent me the BK/Payment plan info from the state - let's see if they answer back. Still calling the lawyer.

[queenfluff]

The state tax people actually answered my email back (shocker!). They said not to make any payments on my balance until my case is discharged and I am to contact them once again when my case is discharged.

They didn't answer my questions about whether I would incrue any late fees or penalties though (figures).