How are non-exempt proceeds distributed?

[rwphil]

Filing Chapter 7. I have ~ $14,000 in IRS income tax debt from this year's filing... ~ $70,000 in unsecured credit card debt. I know the tax debt is not dischargeable.

If the trustee sells my non-exempt personal property for ~ $8,000, how would that be distributed? Would it all go to the IRS first? None to the IRS since I'm making payments on that? To both the IRS and the unsecured creditors?

Any insight would be appreciated. It wouldn't hurt so much to lose my car if it would pay the debt I'm still responsible for.

Thanks much!

[HHM]

I would have to double check the priority list, but I believe IRS debt is generally classified as an unsecured creditor.

So, some would go to the IRS and some to your other creditors. Keep in mind, for a creditor to get paid by the trustee, the creditor must file a claim.

[rwphil]

Thanks, HHM.

Your response prompted an internet search for priority claims. It looks like the IRS would be considered an unsecured creditor but higher in the priority scheme, so the tax debt would need to be paid in full before distributing proceeds to lower priority creditors.

So perhaps the silver lining to losing my car would be a nice chunk of my tax debt being paid off. Otherwise I was looking at doing a "Chapter 20" to handle the tax debt.

[BKParalegal]

That is correct. The IRS should be listed as a Un-Secured Priority Claim, which in the grand scheme of creditors is Class 1 debt, and they get paid first.

Good Luck

[HHM]

Correct, claims of governmental units for income based taxes are number 8 on the priority list.

There are some qualifications however, basically, the tax debt has to be from fairly recent periods (within the last 3 years)

So in that respect, the the taxes get paid before your unsecured creditors.