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BKAnswerMan
BKAnswerMan, Attorney
Category: Bankruptcy Law
Satisfied Customers: 25
Experience:  Experienced Bankruptcy Attorney that has represented over 1,000 clients in consumer bankruptcy proceedings.
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I owed IRS taxes and filed taxes for 2000-2005 in August of

Customer Question

I owed IRS taxes and filed taxes for 2000-2005 in August of 2006. I abandoned an Offer in Compromise and filed a Chapter 13 in February of 2008 in order to also save my home. When I lost my job in 2009 I converted the Chapter 13 to a Chapter 7 in August of 2009. I assumed that the Chapter 7 addressed those taxes (2000-2005) because of the 2006 filing, 3 years before the conversion to the 7. When I found I again owed taxes in 2008,09 and 10 due to under-witholding, I decided to file again for Chapter 13--IRS was going to take all of my paychecks. I am now being told that I still owe 2000-2005 because of the 2008 filing not meeting the 2 year criteria. Wouldn't the 2009 conversion to a Chapter 7 have allowed for a valid discharge if all taxes were filed in 2006?
Submitted: 2 years ago.
Category: Bankruptcy Law
Expert:  BKAnswerMan replied 2 years ago.
This is a very technical question, and not well understood by a lot of attorneys. 11 USC 348 (a) applies in your case.... "conversion of a case from a case under one chapter of this title to a case under another chapter of this title constitutes an order for relief under the chapter to which the case is converted, but, except as provided in subsections (b) and (c) of this section, DOES NOT EFFECT A CHANGE IN THE DATE OF FILING OF THE PETITION, THE COMMENCEMENT OF THE CASE OR ORDER FOR RELIEF"

There are also tolling periods that may apply. The two year time period does not run while you are in an active Chapter 13 bankruptcy and for six months thereafter.
Customer: replied 2 years ago.

Thank you--that clarifies where I stand. So, with a 8/2006 past due tax filing, 2/8 Chapter 13 and 7/09 conversion, it would appear that I do owe the taxes until I can refile the Chapter 7.

It is my impression that the Chapter 13 laws allow for some latitude on the payment to the IRS (what you can pay vs. what they are claiming)--is this true?

Right now, the payments to pay off all taxes due are more than I can manage. Do you think an individual Chapter 11 is a viable option?

Expert:  BKAnswerMan replied 2 years ago.
Thank you--that clarifies where I stand. So, with a 8/2006 past due tax filing, 2/8 Chapter 13 and 7/09 conversion, it would appear that I do owe the taxes until I can refile the Chapter 7.

That is correct.

It is my impression that the Chapter 13 laws allow for some latitude on the payment to the IRS (what you can pay vs. what they are claiming)--is this true?

The main benefit to a Chapter 13 is that it can stop the tax penalties and interest from accruing, but if you are not eligible for a discharge in a new Chapter 13, then the interest and penalties would spring back if you file now. You are generally eligible for a discharge in a Chapter 13 four years after filing a Chapter 7. You should have an attorney research whether there is an exception that applies in a converted case and what your plan payments would look like in a Chapter 13 case. You may be able to enter a repayment plan with the IRS until you are able to re-file. The IRS is surprisingly helpful and may put your taxes in collectible status in some situations, or be willing to enter a repayment plan until you are able to file again.

Right now, the payments to pay off all taxes due are more than I can manage. Do you think an individual Chapter 11 is a viable option?

Chapter 11 bankruptcies are very costly and usually only viable for very high net worth individuals or businesses.
BKAnswerMan, Attorney
Category: Bankruptcy Law
Satisfied Customers: 25
Experience: Experienced Bankruptcy Attorney that has represented over 1,000 clients in consumer bankruptcy proceedings.
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Customer: replied 2 years ago.

Thank you. I did refile a Chapter 13 because I accrued additional taxes due with under-witholding for 2008, 09 and 10 and added another $30,000 to my IRS bill. I refiled at the 4 year mark, this year. However, I assumed that 2000-2005 had been addressed in my prior filing and now find that with penalities, etc., I owe $177,000. My attorney is telling me that I would have to pay $3000 a month to pay all this, not the $600 that my is my current plan payment. We were in the final stages of the confirmation process. This came to light when I questionned why the IRS was keeping a tax refund due. The IRS has not objected to the current plan with a $30,000 payback. It is just my lawyer saying I owe this much. That is why I was hoping we could try to negotiate with the IRS to accept what I CAN pay now under Chapter 13 until I can file the Chapter 7.

Expert:  BKAnswerMan replied 2 years ago.
There are a lot of variables in Chapter 13 cases, but one thing is certain, not too many Chapter 13 debtors can afford a $3,000 monthly plan payment. You may want to ask about what is the minimum payment necessary according to the means test and the best interest of the creditors test--it sounds to me like you've reached the time requirements for non priority general unsecured treatment of your taxes and you may be able to give them a haircut of anywhere from 0% to 100% depending on the two tests above.

A year and a half ran from the time you filed your taxes and first filed bk (8/6-2/8). When you filed the clock stopped ticking until 6 months after your Chapter 13 was concluded (probably around 4/10 depending on how long it takes in your district to issue a close a case). Approximately a year and ten months ticked off the clock when you filed. (4/10 - 2/12) This makes a total of approximately 3 years 4 months. Your chance that the 2000-2005 taxes can be treated as a general unsecured in terms of the 2 year requirement seem fine.

You should ask your attorney what he thinks about the dates, and also have your attorney review your offer and compromise agreement to see if it tolled the time limits, and if so for how long.

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