Non-consumer Chapter 7 (primarily taxes)

[Nomeans]

New here. I am selling my home so I will have no mortgage. I have $390k in back income taxes that will be dischargable in 2015 and $200k in student loans (that are nondischargable). I have no credit cards or auto loans. Since the back income taxes are non-consumer and the student loans are consumer, I have >50% non-consumer debt. I presume that I do not have to take/pass the means test to get a chapter 7. (I make more than median income and would not pass the means test.) I plan to discharge the income taxes once they are eligable (3yr, 2yr, 240day rules). Think it will work?

(I have already refinanced the house and paid them the equity and am making payments even though they havn't ok'd my payment plan. I presume they will want more and worry it will be a tough battle surviving to the point that they will be dischargable.)

[justbroke]

It may work, but this is an advanced "asset" protection and tax planning idea. You would really need a good bankruptcy attorney because you would want to discharge the taxes AND you would want to file non-consumer. Not all Chapter 7 bankruptcy attorneys are proficient at both. (Okay, Des can do anything)


Since you refinanced the home, the amount you gave the IRS in equity, makes that portion of the mortgage debt a non-consumer debt. (It's just like using equity to fund a business.) However, rather than just read this posting on the Internet, you should find a really good non-consumer Chapter 7 attorney that can deal with discharge of taxes as well. Expect to pay more than the average person for your case.

I am actually surprised that they have not filed a Federal Tax Lien against all your property.

[despritfreya]

As JB points out, there is a small potential problem with your plan. If the IRS records a tax lien before you close on the sale of the home. . . you will have to deal with the taxing agency to complete the transaction.

Everything else aside, if you can delay long enough, your plan should work. If you will be getting funds from the sale of the home make sure you keep a paper trail as to where the funds are kept and how they are spent. Just remember, the IRS can (and will) levy bank accounts if you are not under an installment agreement. (And. . . please do not put the funds into someone else's name - just creates a problem when dealing with the bk trustee.)

And. . . despite JB's comment. . . I can't do "anything", just "almost anything". . .

Des.

[justbroke]

I stand corrected.

[keepsmiling]

A general (and possibly dumb) q that I hope you pros won't mind that I asked on this thread.
IF the numbers had been reversed.... since student loans are not dischargeable... can you still do non consumer? in other words, does the 50% rule apply even when the loans are nondischargeable?

[despritfreya]

IF the numbers had been reversed.... since student loans are not dischargeable... can you still do non consumer? in other words, does the 50% rule apply even when the loans are nondischargeable?

The issue of discharge v. non discharge is not the question. It is whether the debt was incurred for household purposes.

See In re Stewart, 175 F.3d 796 (10th Cir. 1999)

The lower court decision in Stewart (found at 201 B.R. 996) was affirmed by the 10th Circuit Court of Appeals. However, the circuit court declined to apply a per se rule to the categorization of student loans as “consumer debt”. Instead, it examined the purpose of the loans. In doing so, it held that to the extent the loans were used to pay for family expenses, they may be characterized as “consumer debts”.

I have used this argument successfully with the UST in persuading it to let the case go forward as a non-consumer filing. (We could prove that the vast majority of the loan was to pay tuition and not used for “family expenses” as referenced in Stewart.) However, as far as I know, this issue has not been litigated in all jurisdictions and but for the Stewart case I personally have not delved into researching the issue.

Des.