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Chapter 7+13 = 20 and Strategy for Back Taxes

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  • Chapter 7+13 = 20 and Strategy for Back Taxes

    I recently filed Ch. 7 and am preparing for the creditors meeting. Nothing else has happened. Other than the unsecured credit card debt, I have back taxes of a few different kinds, all subject to duly filed IRS tax liens on my home (liens were filed by IRS long before I filed for bankruptcy), and am trying to strategize. I think I will probably need to file a Ch. 13 right after I get the Ch. 7 discharge. I'll give the essential facts and then my questions. I have back federal income taxes for three different years and federal tax liens have been filed on my home long ago (pre-petition) for all of that tax debt for all three years. The lien amount of $50K exceeds the equity available (about $30K). The taxes for all three years would meet the 3/2/240 rule for discharge, except that for one of those years, the tax return was filed late. In my jurisdiction, I am told it is assumed that the late-filed return will not be deemed a "return" and so that debt will be considered priority debt and not dischargeable. But the tax debt for the two later years should be dischargeable as non-priority debt, as returns were filed on time and it otherwise meets the 3/2/240 test. There are pre-petition tax liens properly filed on my home, for all of the taxes due, approximately $50K. After deducting the outstanding mortgage on my home, there is $30-40K of equity; although comps in the area show the equity might be as high as $50K, that is really not the case with my home because of its condition, and I'm sure an appraisal will show a lower value. So it looks like this:
    HOME VALUE = $150-160K
    OUTSTANDING MORTGAGE = $120K
    EQUITY = $30-40K
    Lien for 2009 Taxes (lien filed in 2012))/tax arrears then owed = $20K (tax return filed late; otherwise 3/2/240 rule met)
    Lien for 2010 Taxes (lien filed in 2012)/tax arrears then owed = $15K (tax return filed on time and 3/2/240 rule met)
    Lien for 2011 Taxes (lien filed in 2013)/tax arrears then owed = $15K (tax return filed on time and 3/2/240 rule met).

    So I filed using the low end of the range of value for the home (which I think is perfectly reasonable and accurate given the condition and repairs needed) as follows:
    $150K value of home; $120K mortgage (only one). Equity $30K (all exempt per state homestead).
    Schedule D - entered 2009 tax debt as secured debt of $20K fully secured by filed tax lien
    Schedule D - entered 2010 tax debt (only two thirds of that total debt) of $10K as secured by filed tax lien.
    Schedule D thus shows the mortgage debt is fully secured, and that the above tax debts are then secured up to the $30K remaining equity.
    Schedule F - entered remainder of 2010 tax debt, or $5K, as unsecured, nonpriority debt.
    Schedule F - entered 2011 tax debt (entire thing), of $15K, as unsecured, nonpriority debt

    I assume that the 2009 tax debt would be considered priority tax debt, and thus not dischargeable because of the silly rule that old taxes for late-filed tax returns, even if they otherwise meet the 3/2/240 test, are not dischargeable. I assume that 2010 and 2011 are fully dischargeable but they are nonetheless subject to the liens, for which the 10-year statute of limitations runs in about 5 more years. I am hoping to have all but the 2009 debt discharged, and then pay the 2009 tax debt through a 3-year Ch. 13 plan after I get the Ch. 7 discharge; in other words, I will be filing a "Chapter 20" (Ch. 7 followed by a Ch. 13), so that I can pay back the priority debt for 2009, without interest, over three years. I am assuming that I will eventually then be able to have the liens removed.

    QUESTIONS - I'd love answers, or attempts at answers, to any of the following:
    1.) Did I put the tax debts in the right places, among the possible options - Schedule D, E and F? If not, what should I move where?
    2.) Can I expect the IRS to file a claim, in which they lay out what they consider dischargeable, priority, non-priority, etc., and/or what the value of their lien is?
    3.) If the IRS does not file a claim, within 60 days of the creditors meeting (the deadline), should I file a claim on their behalf, to state my position as to the (minimal) value of the lien and the personal dischargeability of most of this tax debt?
    4.) Should I instead file any of the following: a) Complaint for Declaratory Judgment of the Value of the IRS Liens, and/or b) Complaint to Determine Dischargeability of the IRS Tax Debts?
    5.) If I need to file any of those complaints mentioned in 4) above, should I get my home appraised to support my opinion of its relatively low value?
    6.) Will I be able in this Ch. 7 case to get a definitive ruling about the (minimal) value of the IRS liens that I will be able to use after discharge, and when I file a new Ch. 13, in order to hold the IRS to the lower tax debt (I am assuming just $30K, which I could pay over three years, without interest, in a Ch. 13).
    7.) What should I do in my Ch. 7 case and what should I wait to do in my Ch. 13 case, in order to reduce the value of the liens appropriately, to maximize the amount of tax that will be discharged, to get the liens removed, and otherwise to maximize my discharge of debt and remove the liens as soon as possible?
    8.) How would I go about removing liens?

    Thanks for any help!! I know you should probably say to me: "Go get a lawyer." I know, I know. But I am trying to do this myself because...well, no money!
    Last edited by bkprose; 12-27-2016, 02:19 PM.

  • #2
    Originally posted by bkprose View Post
    1.) Did I put the tax debts in the right places, among the possible options - Schedule D, E and F? If not, what should I move where?
    I would generally state that you put them where they may belong. The IRS is very very good about assessing the dischargeability issue themselves. They will file a claim and you will see EXACTLY what they think about the dischargeabiliy. The IRS' claim will have "priority" and "general unsecured" taxes, fees and penalties. The former being non-dischargeable and the latter being fully dischargeable.

    Originally posted by bkprose View Post
    2.) Can I expect the IRS to file a claim, in which they lay out what they consider dischargeable, priority, non-priority, etc., and/or what the value of their lien is?
    See above.

    Originally posted by bkprose View Post
    3.) If the IRS does not file a claim, within 60 days of the creditors meeting (the deadline), should I file a claim on their behalf, to state my position as to the (minimal) value of the lien and the personal dischargeability of most of this tax debt?
    The IRS has 180 days to file a claim. Again, the IRS is a very cool customer when it comes to filing claims and what their systems show as dischargeable versus priority/secured debt.

    Originally posted by bkprose View Post
    4.) Should I instead file any of the following: a) Complaint for Declaratory Judgment of the Value of the IRS Liens, and/or b) Complaint to Determine Dischargeability of the IRS Tax Debts?
    I can't give you any legal advice on that. You can deal with the IRS after you see what is in their claim. Remember, if you choose to fight the IRS, they'll be represented by one or more Assistant U.S. Attorneys. Filing an Adversary Processing (AP) / Complaint against the IRS is not for amateurs.

    Originally posted by bkprose View Post
    5.) If I need to file any of those complaints mentioned in 4) above, should I get my home appraised to support my opinion of its relatively low value?
    IRS liens attach to everything, not just your home. I would not worry about a complaint. You need to first see how the IRS classifies your tax liability. Later you can determine whether it's "worth" opening any AP or merely negotiating with the IRS.

    Originally posted by bkprose View Post
    6.) Will I be able in this Ch. 7 case to get a definitive ruling about the (minimal) value of the IRS liens that I will be able to use after discharge, and when I file a new Ch. 13, in order to hold the IRS to the lower tax debt (I am assuming just $30K, which I could pay over three years, without interest, in a Ch. 13).
    See above.

    Originally posted by bkprose View Post
    7.) What should I do in my Ch. 7 case and what should I wait to do in my Ch. 13 case, in order to reduce the value of the liens appropriately, to maximize the amount of tax that will be discharged, to get the liens removed, and otherwise to maximize my discharge of debt and remove the liens as soon as possible?
    See above. All liens pass through bankruptcy (period). The only way to get rid of a lien is to fight to have it "valued" at a lower amount. Again, this is not as simple as it sounds. I will also mention, again, that the IRS is a relatively "cool" customer.

    Originally posted by bkprose View Post
    8.) How would I go about removing liens?
    What liens?

    I know you have no money and can't afford an attorney, but I would not just go off suing the IRS (via AP/Complaint) because it may make matters worse. The IRS is pretty good at determining what they are legally entitled to collect/enforce. You would, of course, be better served by consulting with some bankruptcy attorneys on this matter. Even if you have to pay $100 for a consult, it may be worth it.

    Your case is complex and is precisely why I always recommend that if there are tax issues and/or lots of property (equity) then you really need an attorney. I would rather not read another story where a Pro Se individual messed up and made things worse. I can't give legal advice and I can't give tax advise, and you really need both.

    (As for the Chapter 20 discussion, that's a strategy to pay off the IRS debt, but the IRS debt would have already been "reduced" to the priority amount in the Chapter 7. In other words, all the dischargeable parts would have been discharged in the Chapter 7. The only thing a Chapter 20 (Chapter 13) would do is get rid of the interest rate on the remaining IRS debt. You could do an OPA (online payment agreement) when the amount is less than $50K and you can spread it over 5 years. I don't see, other than the interest, what a Chapter 20 (13) does for you in that specific case. I'm no tax expert and I'm just letting you know how it appears. You need more than a "good" strategy. You need a "real" strategy and a back up plan.)
    Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
    Status: (Auto) Discharged and Closed! 5/10
    Visit My BKForum Blog: justbroke's Blog


    I am not an attorney. Any advice provided is not legal advice.

    Comment


    • #3
      Thanks justbroke. Super helpful! I will seek some legal advice, although I think I am likely to follow what you have suggested, particularly to wait to see how the IRS categorizes the debt owed to it. I also am wary of fighting the IRS, especially without a lawyer skilled in bankruptcy (and tax, ideally). I am hopeful I won't need to do that. If, as I assume, much of my personal liability on the tax arrearage will be discharged, then I think the remaining tax debt will be manageable and I will be able to pay it back, either through a Ch. 13 repayment plan, or directly through a repayment plan with the IRS. Also, if my assumptions (above) are at least mostly correct, and the IRS is as cool as you say they usually are, then, as you say, I'll probably not have any need to file Ch. 13, just to reduce the interest during repayment. I would much prefer to negotiate with the IRS through a payment plan and have the bankruptcy court behind me after the Ch. 7 discharge. My only worry is that somehow there may be too much debt left undischarged, and with further interest to be applied, it may be necessary or advisable to do a Ch. 13. The dilemma of course is that with another ongoing bankruptcy, that will toll the 10-year statute of limitations on collections. If I work with the IRS outside of bankruptcy court (after the Ch. 7 discharge), I will probably have the remaining tax debt paid off around the time the liens expire anyway, and then I will be able to get the IRS liens on my home (those are the liens I was referring to - the federal tax liens filed on my home) removed.

      Thanks so much for your help!! I'll update on how it all goes.

      Comment

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