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Can a Ch 13, help with this situation?

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  • Can a Ch 13, help with this situation?

    My question has to do with taxes as they apply with Ch 13. Here is the situation for my friend, I filed a 7 and am clueless on the laws of 13.

    CH 7 filed in 10/05, discharged in 2/06.
    He owes IRS about 12K for taxes from 06, 07, 08 (06 filed this year, 07 and 08 on time) He will owe for 09 as well, will kjnow later this week how much.
    Overpayment to Unemployment of 3K
    Truck that was repo'd, 7K
    3 charge cards totalling about 4K, 2 have judgements already
    He also has a child support order of 500.00 per month, 3700 in arrears but is being paid down with additional payments each month.

    Last year, 2010 his income was 20K but I haven't figured his tax due yet as the income was on a 1099.

    He just started a new job (3 weeks ago) where he hauls camper trailers around the country and he can afford a payment in a ch 13. He is also now doing a profit/loss sheet for proper tracking of expenses and such associated with his driving as all expenses are paid by him and he is paid for the delivery of the camper. But the bottom line is he can now make payments to fund a ch 13 plan.

    The thought is, if he filed a ch13 all collection action would stop. He would then be able to pay the IRS payments throught the plan over the next couple years and then possibly convert (if he qualifies) to a ch7 for a discharge? Or if they put him in a 3 year plan he would just stick with the plan. But then would the IRS bills still unpaid be discharged at that point?

    I just do not know how this would all work, or if it is a good plan to get him out from under the rock.

    He has no assets so this isn't a issue.

    So if anyone knows how this all would work please advise. I am suggesting he talk to a BK attorney but thought I'd get your opinions because true experience is sometimes almost as good. But he is also on the road, and unable to talk to one until perhaps next week or the week after.

    Please share your thoughts, does this sound feasible?
    8-07-09-filed Chapter 7

    Life is not what challenges you face, but how you face those challenges.

  • #2
    Well a couple of things.

    If he's not going to pay the unsecured debt (IE credit cards/etc) in full then they will probably make him do a 5 year plan, not 3.

    As to taxes, that is a very very grey area. If the taxes meet a number of requirements then eventually they could qualify for discharge in a bankruptcy but the rules there are very complex.

    When he files the IRS would divide the taxes into about 3 categories: Secured (which would be where a lien of some kind has been imposed), priority (where the taxes are owed) and unsecured (where in theory they could be discharged in time)

    To qualify for discharge things are complicated

    The taxes have to have been due at least 3 years ago (IE as of 4/15/2010 any taxes due 4/15/2007 or earlier would qualify)

    They also have to have been filed at least 2 years ago (so the 2006 taxes that were due on 4/15/2007 would not be dischargable until 2 years from now).

    They also have to have been assessed at least 180 days ago. This is the real obscure area as pretty much any sort of work on a payment plan (or potentially any payments in the Chapter 13) could qualify as a reassessment to restart the clock.

    There are also fraud rules which could apply depending on his specific situation which pretty much toss out the rules above.

    I've had clients do taxes through a 13 and I've asked other attorneys and nobody has really figured out exactly how the IRS decides what taxes are dischargable or not.

    As always, the advice you get here (or at least from me) is worth what you pay for it. Purely an opinion and not legal advice since everything is client specific.

    But he might want to at least consult with a bk attorney.


    • #3
      It would be fine if he was in a 5 year plan, but he may convert after the couple years is over if it helps. That would depend on the situation and what the attorney would say. The goal is to get out from this mess regardless how it needs to be done, within reason of course.

      I would think the taxes would be a priority debt, as there is nothing for them to put a lien on and there is no doubt he owes it. There is a doubt of collectability with his financial condition and a OIC has been considered as well. The tax debt was due to him is paid via 1099 and making only 20K a year while paying child support, and attempting to make the truck payment/ins/food/fuel etc...didn't leave enough left over to pay taxes. There was no fraud involved, just bad money management and decisions. He just found out this year that 06 taxes were not filed and he filed right away. (His X told him she filed them together, when she did not)

      He will go see a attorney when he gets back home. I wonder if there would be any advantage in trying to find a Enhanced Agent attorney to file his BK, or if a CH 13 attorney would be good enough?

      Lodibklaw, thanks for your comments. There is such little information on Taxes and 13's. Clearly a messy situation.
      8-07-09-filed Chapter 7

      Life is not what challenges you face, but how you face those challenges.


      • #4
        Originally posted by NoMoreCards View Post
        dThe thought is, if he filed a ch13 all collection action would stop. He would then be able to pay the IRS payments throught the plan over the next couple years and then possibly convert (if he qualifies) to a ch7 for a discharge?
        Yes, your friend can file Ch 13 *ONLY IF* he shows enough disposable income on the Means Test or Schedules to make his child support payments, car payments, etc. and still pay off what he owes the IRS in full by the end of his plan along with whatever payback % he ends up having to pay to his unsecured creditors who enter Ch 13 claims.

        You didn't say how much he realistically expects to earn in his new job.

        Whether he gets a three-year plan or a five-year plan depends on two things - when he files, looking back the last six full calendar months, is his income from all sources above or below the median for his family size (I assume one) in his state. If he's below, then the plan will be three years. If he's above, then it's likely he'll be in a five-year plan.

        Whether he can convert to Ch 7 when he's eight years out from his Ch 7 filing depends on how he comes out on the amended Means Test and Schedules again.

        If your friend has not talked with a bk lawyer yet, it's time. Tell him to make 3-4 free initial consultations with experienced bk attorneys in his area. They can help him sort out whether Ch 13 is possible for him or not.

        I hope everything works out well for your friend. Sounds like he's due a break.
        I am not a lawyer and this is not legal advice nor a statement of the law - only a lawyer can provide those.

        06/01/06 - Filed Ch 13
        06/28/06 - 341 Meeting
        07/18/06 - Confirmation Hearing - not confirmed, 3 objections
        10/05/06 - Hearing to resolve 2 trustee objections
        01/24/07 - Judge dismisses mortgage company objection
        09/27/07 - Confirmed at last!
        06/10/11 - Trustee confirms all payments made
        08/10/11 - DISCHARGED !

        10/02/11 - CASE CLOSED
        Countdown: 60 months paid, 0 months to go


        • #5
          He can show enough on the means test over the 6 month look back to pay his obligations to child support, it is the only bill he must continue to pay.

          He has a meeting March 8th with a guy who specialzes in 13's. He also has the option of doing a OIC with the IRS to lower that IRS bill, at least we've been told that. So we are not rulling that out yet either. They base it on income for previous years and assets. And with a 20K income and zero assets, he should qualify as their is a doubt as to collectability. I am thinking that the OIC might be the first step, but we will see what the attorney says.

          As of right now, he is WAY under the means test for our area. We have no idea how much he will make in the new job, but it will be more than last years amount. January he shows a loss of 1K (start up expenses), Feb is break even but with A/R at 2K which will be paid early March. So although it goes on the books for March, it was earned in Feb and all expenses were written off in Feb so it is clear profit. March should be about 3K profit.

          This needs to be resolved somehow, and I am looking at all options. I think we need a appointment with a Enhanced Agent as well to see what they say.
          If this IRS thing can get resolved, maybe we can set up payments on the other stuff.
          8-07-09-filed Chapter 7

          Life is not what challenges you face, but how you face those challenges.


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