Post discharge pre-close priority debts

[Pascal666]

I received my discharge several months ago, but I don't expect my bankruptcy to actually close or the trustee to make any distribution of assets for several years (my only non-exempt assets are contingent and unliquidated). My priority debts included both state and federal taxes. I just received via certified mail a "Notice of intent to levy" from the IRS.

1. Are holders of priority claims really allowed to come after me before the bankruptcy has closed and the trustee has distributed the estate's assets?

2. Are holders of priority claims required to file a proof of claim? Does not doing so completely invalidate the debt? How can I find out if they did so?

3. When the Trustee eventually gets around to paying the taxes, will he only pay the amount on the proof of claim and leave me holding the bag for penalties and interest accrued since then?

4. If I pay off a priority debt before the trustee does (to save myself penalties and interest and them hassling me), can I recover the money from the trustee during the distribution of assets? Would the trustee just blindly send the money to the government based on their proof of claim and the government would then follow their standard policy for overpayments? Does the answer change if they seize enough assets to pay off the debt rather than me intentionally doing so?

5. Any tips/tricks/common problems/things to look out for/etc. in this situation I should know about?

Thank you in advance for your assistance.

[AngelinaCatHub]

I received my discharge several months ago, but I don't expect my bankruptcy to actually close or the trustee to make any distribution of assets for several years (my only non-exempt assets are contingent and unliquidated). My priority debts included both state and federal taxes. I just received via certified mail a "Notice of intent to levy" from the IRS. The stay should hold up until the close. Have your Trustee (through lawyer) address this to the IRS bk department. http://bankruptcy.lawyers.com/consum...rs-At-Bay.html

1. Are holders of priority claims really allowed to come after me before the bankruptcy has closed and the trustee has distributed the estate's assets? NO, they are out of luck. It took us one year to close and the distribution and costs were settled. See link above.

2. Are holders of priority claims required to file a proof of claim? Does not doing so completely invalidate the debt? How can I find out if they did so? If they were listed on your Matrix there is no need. Certain claims are always priority. IRS and other taxes. No debt is invalidated if you owe money. Only forgiven after discharge if non secured. They cannot never (legally) go after you after discharge.

3. When the Trustee eventually gets around to paying the taxes, will he only pay the amount on the proof of claim and leave me holding the bag for penalties and interest accrued since then? Up to the payment and during the stay no penalties are assessed. They can be afterwords. i.e. six of our 27K was paid, we pay on a schedule and the interest goes on from there. The primary priority is paid 100% first, anything left over to others. IRS, then state, then others.

4. If I pay off a priority debt before the trustee does (to save myself penalties and interest and them hassling me), can I recover the money from the trustee during the distribution of assets? Would the trustee just blindly send the money to the government based on their proof of claim and the government would then follow their standard policy for overpayments? Does the answer change if they seize enough assets to pay off the debt rather than me intentionally doing so? Watch out. Even though you are discharged, watch priority payments. No the Trustee will just pay down hill from your payments. You will waste your money. Let the Trustee handle it. An asset case and remind the creditor that your case is NOT finished.

5. Any tips/tricks/common problems/things to look out for/etc. in this situation I should know about? Yes. Do nothing except inform your lawyer and if necessary, the Trustee directly about anyone hassling you for payments.

Thank you in advance for your assistance.

You are welcome. Pleased to have you aboard. 'Hub

[AngelinaCatHub]

Automatic Stay and Tax Assessments

An automatic stay goes into effect as soon as you file for bankruptcy. All collection efforts by creditors must stop, and all legal proceedings against you are suspended, including legal actions by the IRS. However, the automatic stay doesn't stop the IRS from:

Auditing you
Demanding you file tax returns
Sending you a notice of tax deficiency
Making tax assessments (setting the value of taxable property) and issuing of a notice and demand for payment of the assessments

Payment of Tax Claims

In a Chapter 7 bankruptcy, the IRS usually can't take your money or property to pay income taxes if those taxes became due within three years of the date you filed for bankruptcy. However, the IRS can file a proof of claim for those taxes. The claim is paid out of the assets of the bankruptcy estate if there's anything left after other creditors are paid.

Generally, tax claims older than three years old (from the date of your bankruptcy) may be removed in Chapter 7.

Under Chapter 13, you pay your unpaid income taxes over three or five years, based on your debt repayment schedule.

http://bankruptcy.lawyers.com/consumer-bankruptcy/Bankruptcy-and-Tax-Consequences.html

'Hub

[despritfreya]

The issues you raise create a lot of misconception due to the intricacies of the Code.

1. The automatic stay, as it relates to a debtor (as opposed to property of the estate) ends upon the entry of a Discharge. See 11 U.S.C. Section 362( c)(3).

2. Since the stay is lifted upon entry of the discharge, a priority creditor (or any creditor who’s debt is not discharged, like student loans) is free to collect against the debtor from property that is not property of the estate upon the entry of a discharge. For example, post petition wages are not property of the estate and is subject to levy by the taxing agency.

3. There is no requirement for a creditor (of any type, secured, priority unsecured or general unsecured) to file a Proof of Claim. Filing of a Proof of Claim only means the creditor wishes to participate in the distribution. In fact, if a creditor (including a priority creditor) fails to file a claim, you as the debtor, have the right under Rule 3004, Bank. R. Civ. P. to file a claim on the creditor’s behalf. If a claim is not filed all that means is the creditor will not receive a distribution from the bk estate. It does not change the nature of the debt. If the debt is non-dischargeable, it remains non-dischargeable.

Practice pointer: In asset cases, where I know there is a priority claim, I calendar the deadline. The debtor has 30 days after the bar date to file a claim. About a week before the end of the bar date I check to see if a claim was filed. If no claim, I contact the creditor and request the claim. If the creditor does not file the claim I file one for it. I want my client to get the benefit of the $$ the trustee distributes therefore I want as much of it as possible to go to the priority claim.

4. It is also interesting to note that interest will continue to accrue on the priority tax debt and, even if the taxing agency agreed to forego payment directly from the debtor, the accrual of interest will not be paid by the Trustee unless there is a “solvent” estate. See 11 U.S.C. Section 726(a)(5).

5. If you, as the debtor, pay the priority portion before the Trustee does, the money the Trustee would have used to pay the claim will just be paid down the line to other creditors. You, as the debtor, are not entitled to the return of any funds that are to be used to pay creditors until all allowed/filed claims are paid in full. If the estate is not “solvent”, the debtor does not get any money back. See 11 U.S.C. Section 726(a)(6).

Des.

[Pascal666]

1. IRS Publication 908 (sorry, I'd include a link but this forum won't allow me to do so until I've made 15 posts) states (in part): "A penalty for failure to pay tax, including failure to pay estimated tax, will not be imposed for any period during which a bankruptcy case is pending". Does "pending" in this context mean before the discharge or before the case closes?

2. How do I find out who filed proof of claim forms? I can't seem to find such a thing in PACER.

3. If I pay off a debt before the Trustee, how would the Trustee even know?

Thank you so much for all your help Des.

[IamOld]

Des forgive me for intruding, but what would this mean to a CH 13 where existing installment plan for taxes is included in the plan IRS taxes OR would I just continue paying IRS with existing plan??

[despritfreya]

Des forgive me for intruding, but what would this mean to a CH 13 where existing installment plan for taxes is included in the plan IRS taxes OR would I just continue paying IRS with existing plan??

In a Chapter 13 any pre petition installment plan would be moot. All priority taxes must be paid through the Plan (the Trustee has to get his cut) and the government, once notified of the filing, should not be accepting payments - nor should the debtor be following the installment agreement. The government will file a POC and the Order Confirming the Plan will match the priority amount on the claim. Penalties will be dropped to general unsecured and treated like any other unsecured claim. Interest will stop running as of the day of filing.

Des.

[despritfreya]

1. IRS Publication 908 states (in part): "A penalty for failure to pay tax, including failure to pay estimated tax, will not be imposed for any period during which a bankruptcy case is pending". Does "pending" in this context mean before the discharge or before the case closes?.

Good question and, sorry, but I have no idea.

How do I find out who filed proof of claim forms? I can't seem to find such a thing in PACER..

There is more than one way to access this but I think the easiert way - When you go to PACER, click on the category called "Reports" then go to "Claims Register". Put in your case number and, there you go. . .

If I pay off a debt before the Trustee, how would the Trustee even know?

You would keep on top of it by contacting the IRS to make sure it either amended (reduced) or withdrew its Proof of Claim.

Des.

[IamOld]

Million thanks Des - one more convolution - I owe again for last year 2010 (401k withdrawals to pay bills - yes stupid) so NO refund. Normally I file an extension and either somehow come up with the money before Oct 15th or beg and plead with the IRS. From what I've read on the IRS website, they won't object to the Ch 13 as long as valid extension is timely filed.

My problem is that I cannot include 2010 in Ch 13 because it would put spouse over the 13 limit. If I file Ch 13 first, then I could include it in mine as she's got more unsecured debt than me...BUT here is the question...

MUST 2010 taxes owed be included in plan, or can I deal with IRS outside of the plan when time comes in Oct/Nov??? I read on another thread that sometimes IRS allows a plan separately for post-petition debt - since I truly don't know what I owe exactly (as my bankruptcy atty asked why in the world I'm not deducting reimbursed ee expenses and I cannot truly get that together by the 18th just estimate)...so in other words since/if I file an extension only would 2010 taxes be post petition? Filing will have to be next week at the earliest...after the 18th....

In a Chapter 13 any pre petition installment plan would be moot. All priority taxes must be paid through the Plan (the Trustee has to get his cut) and the government, once notified of the filing, should not be accepting payments - nor should the debtor be following the installment agreement. The government will file a POC and the Order Confirming the Plan will match the priority amount on the claim. Penalties will be dropped to general unsecured and treated like any other unsecured claim. Interest will stop running as of the day of filing.

Des.

[despritfreya]

@IamOld,

I cannot answer your specific question as it relates to debt limits and filing separate cases. I am in a community property state. If the debt (incurred during the marriage) of both spouses puts them over the limit then filing separate 13's does not work.

Tax owed for 2010 IS a pre petition debt regardless of any extension. The tax became assessable as of 1/1/11. Even though you are on an extension the taxing agency is going to file a claim listing 2010 liability as "unfiled" with an estimated amount owed. Once the return is filed the agency will amend the claim.

Des.

[IamOld]

Thanks again Des - I am NOT in a community prop state, so separate debts are separate...BUT then with the 2010 taxes due, I think I will have to do the 13 filing...so I'm going to send another email to the atty, and hope to get some kind of reply...I don't want to be a pest, but I don't want to wind up getting there next week, and nothing works...

@IamOld,

I cannot answer your specific question as it relates to debt limits and filing separate cases. I am in a community property state. If the debt (incurred during the marriage) of both spouses puts them over the limit then filing separate 13's does not work.

Tax owed for 2010 IS a pre petition debt regardless of any extension. The tax became assessable as of 1/1/11. Even though you are on an extension the taxing agency is going to file a claim listing 2010 liability as "unfiled" with an estimated amount owed. Once the return is filed the agency will amend the claim.

Des.

[Pascal666]

1. IRS Publication 908 (sorry, I'd include a link but this forum won't allow me to do so until I've made 15 posts) states (in part): "A penalty for failure to pay tax, including failure to pay estimated tax, will not be imposed for any period during which a bankruptcy case is pending". Does "pending" in this context mean before the discharge or before the case closes?

IRS Publication 908 can be found at http://www.irs.gov/publications/p908/

The section of IRS Publication 908 in question is actually referring to 26 U.S.C. § 6658 : US Code - Section 6658 which can be found at http://codes.lp.findlaw.com/uscode/26/F/68/A/I/6658

The answer to my question can be found at http://www.irs.gov/irb/2005-06_IRB/ar11.html

"A bankruptcy case is no longer pending for purposes of relief under section 6658 when the bankruptcy case is closed or dismissed."

[justbroke]

Pascal666, please read the Forum Posting Rules and refrain from re-opening old threads. This thread has not had a post in over 5 months.

[Pascal666]

Pascal666, please read the Forum Posting Rules and refrain from re-opening old threads. This thread has not had a post in over 5 months.

The only mention in the forum rules I can find about old threads states 'All BF users agree not to "bump" old threads, unless there is a specific benefit to the community by doing so.' Considering despritfreya (a frequent poster to these forums) stated "Good question and, sorry, but I have no idea." in regards to the question I just answered, I believe posting an answer to the question once I finally found it comprises "a specific benefit to the community".