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Income tax debt as "non consumer debt"

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  • Income tax debt as "non consumer debt"

    Hi from Indiana!

    It is my understanding that tax debt in most courts is considered "non consumer debt" therefore can bypass the means test if the debt is larger than the debtor's consumer debt.

    I'm looking at over 105,000 in back taxes and no where near that in consumer debt. Due to my wifes relatively high income I'm struggling to pass the means test for Chapter 7, but the Lawyer I'm consulting with says no, tax debt don't count due to case law. I cannot find this case law anywhere and I have been googling my brains out. All I come up with is that MOST courts allow it as non consumer debt :/

    Does anyone know anything about this subject??

    Thanks in advance


  • #2
    Lots of case law that is pre-BAPCPA

    In re Brashers, 216 B.R. 59 (Bankr. N.D.Okla., 1998)

    “Order determining that debtor’s income tax obligations do not constitute consumer debt and denying United States Trustee’s Motion to Dismiss under 11 U.S.C. § 707(b)”

    In re Westberry, 215 F.3d 589, 591 (6th Cir. 2000) - tax debt for purpose of Chapter 13 co-debtor stay is not “consumer”.

    Then there is a relatively recent (unpublished) North Carolina decision. . .

    In re Kintzele (Bankr.E.D.N.C., 2013)

    “The Sixth Circuit's decision in In re Westberry, 215 F.3d 589 (6th Cir. 2000) addressed the question of whether a tax debt was a consumer debt for purposes of 11 U.S.C. § 1301. The court found four differences between tax debt and consumer debt, the sum of which, led the court to conclude that the tax debt could not be considered consumer debt:

    1. Tax debt is not incurred voluntarily, while consumer debt is;
    2. Tax debt is incurred for a public purpose while consumer debt is statutorily defined as being incurred for personal or household purposes;
    3. Consumer debt is generated by consumption whereas tax debt results from the earning of money; and
    4. Unlike taxes, consumer debt typically involves the extension of credit.

    Virtually every court that has considered the issue has concluded that tax debt is not considered consumer debt. See In re Brashers, 216 B.R. 59, 60-61 (Bankr. N.D. Okla. 1998) (income tax obligations are not consumer debts under § 707(b)); In re Stovall, 209 B.R. 849, 854 (Bankr. E.D. Va. 1997) (personal property tax is not consumer debt for § 1301 purposes); In re Dye, 190 B.R. 566, 567 (Bankr. N.D. Ill. 1995) ("federal tax liability is not consumer debt" for § 1301 purposes); In re Greene, 157 B.R. 496, 497 (Bankr. S.D. Ga. 1993) (same); In re Goldsby, 135 B.R. 611, 613-15 (Bankr. E.D. Ark. 1992) (same); In re Traub, 140 B.R. 286, 288 (Bankr. D.N.M. 1992) (same); In re Reiter, 126 B.R. 961, 964 (Bankr. W.D. Tex. 1991) (same); In re Harrison, 82 B.R. 557, 558 (Bankr. D. Col. 1987) (same); In re Pressimone, 39 B.R. 240, 245 (N.D.N.Y. 1984) (same).

    To the extent that the Fourth Circuit's ruling in In re Kestell, 99 F.3d 146 (4th Cir. 1996) suggests that circuit precedent requires a finding contrary to Westberry, this court rejects that argument as Kestell did not involve a tax debt and therefore is not controlling on the issue.

    This court agrees with the reasoning in Westberry on the question of whether the debtor's tax debt is consumer debt. Based on the record before the court, it was proper to classify the tax debt as non-consumer debt. Accordingly, the bankruptcy administrator's motion to dismiss case for abuse is DENIED.”
    Quote modified for ease of reading.



    • #3
      Thank you, now I really wonder why the lawer said the opposite


      • #4
        Originally posted by Kenbad View Post
        . . . now I really wonder why the lawer said the opposite
        Indiana is in the 7th Circuit. But for the Dye decision, all cases cited above are not. Ask the attny for 7th Circuit cases that support a position that taxes are consumer in nature and see what he says. You can even cite the above for the proposition that they are not consumer in nature.



        • #5
          Ken im a tax analyst at a tax resolution firm! Please feel free to call my office line XXX-XXX-XXXX
          Last edited by justbroke; 06-08-2017, 05:49 PM. Reason: Forum Rules do not permit unauthorized soliciting


          • #6
            I am not an attorney, but I cannot imagine how by any stretch of the imagination, tax debt could be considered "consumer debt". You should be ok.


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