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unexpected tax bill - do we involve attorney and trustee?

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    unexpected tax bill - do we involve attorney and trustee?

    We filed Ch. 13 May 2016. Got a bill from the IRS a couple of months ago for our 2018 taxes. Forgot to claim a 403B hardship withdrawal as income. Never got tax papers and it just went off the radar. Now with penalties and interest, own the IRS $4,200. We could scrape to try and pay it by Feb. (the deadline) or is there an option to have it added to our plan? What are the positives and negatives to either option? Note: our trustee fights every single little thing without fail

    treadingwater Yes, you need to talk to your lawyer, but it should have been done before you withdrew the 403B. The 403B withdrawal (net of taxes) converted exempt assets to non-exempt income that now belongs to your unsecured creditors. You should try to claim that there was an unanticipated (not already in your budget) but necessary expense with the help of your lawyer which may allow you to keep the 403B money, but I don't believe anyone should assume this type of motion is guaranteed to be approved whether it's for tax refunds or retirement account withdrawals. With the trustee you have, you need to have this expense well documented with proof of payment. And that trustee might challenge you on it anyway even with documentation.

    The trustee that fights every single little thing without fail is the most common variant and any that are not are extremely rare. I have my own theory on the best way to deal with this type of trustee, but that's for another time.


    • treadingwater
      treadingwater commented
      Editing a comment
      Thanks, I would love to hear your thoughts on how to deal with this type of trustee. I would also like to know if the $4,200 debt can be added to our plan? I asked the paralegal before doing the withdrawal and was told retirement hardship withdrawals were not property of Trustee.

    Thanks. I would love to hear your thoughts on how to deal with this type of trustee. I would also like to know if the $4,200 debt can be added to our plan


      despritfreya wrote about this before. In some cases, your attorney may be able to add it as an "administrative" expense to the existing plan. I have never done this, so have no direct experience.
      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.


        See this link. . .

        Scroll down to my post. Same concept except the tax claim is filed under 1305(a)(1). But. . . the Plan cannot go beyond 60 months and you are already 44 months into it so it may just be too costly as your Plan payment will increase no less than $288 per month.

        Additional alternative to those mentioned. Enter into an installment agreement for some relatively small amount just to keep in the good graces of the IRS. Increase the amount if and when possible and certainly once the Plan payment ends.

        Talk to your attny.



          So regarding the trustee that fights you on every little thing...

          The key to dealing with this type of trustee is to anticipate everything he is going to ask for and obeying local customs for what's allowed and what won't. The top shelf BK lawyer who has spent many years practicing in the district should know all of the panel trustees, all of the assistant trustees, and all of the BK judges very well. For every expense, the lawyer will know what is allowed and what is not. For example, medical expenses are typically allowed when backed up by receipts. The lawyer will ask you for receipts before filing or before amending and will prescreen this stuff to anticipate nitpicking issues. In my district, he knows dental expenses are suspect and certain other medical expenses are suspect as well. There is no such thing as monthly or recurring root canals or broken arms so you may have to lower your numbers prior to submitting the plan to the trustee if you have suspect expenses. If you don't have receipts to back up your claims, you can expect to be challenged and cut down. If your documentation is complete, the lawyer and trustee will haggle it out in email and you might come out of the 341 meeting with no objections to confirmation and no increase to the original plan payment, which is almost unheard of nowadays. If the trustee thinks your plan has a lot of unsubstantiated expenses and your lawyer doesn't ask you to submit documentation, he will fight you on every little thing and send you a long list of things in the objection to confirmation. Once the trustee gets the feeling that you're an honest debtor not trying to inflate expenses, your file will move to confirmation so he can go after lower hanging fruit.


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