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JoeLawyer
JoeLawyer, Attorney
Category: Bankruptcy Law
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Experience:  Attorney in the practice of Bankruptcy Law since 1996
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Our BK 13 was confirmed on Nov 2012 and included Federal &

Customer Question

Our BK 13 was confirmed on Nov 2012 and included Federal & State Tax Debt. We just had our 2012 taxes done & owe the IRS $3,600 (as a result of losing our home in a foreclsure sale in Jan 2012 & losing the deductions) AND we are receiving a $1,000 refund from the State. We don't have the money to pay the IRS and I'm extremly stressed about what impact thay will have on the tax debt portion of our BK 13.
Also not sure if we will recieve the State refund (would help us pay the IRS debt) & if the trustee will be notified of the 2012 IRS debt due & the refund from the state.

I'm hesitant to call our BK 13 attorney because I was also laid off in Jan 2013 and I'm concerned about our BK 13 case being cancelled/reviewed again since we barely qualified due to our income.

Any advice would be GREATLY appreciated. Thanks
Submitted: 1 year ago.
Category: Bankruptcy Law
Expert:  JoeLawyer replied 1 year ago.
Hello.

Post-petition tax liability (i.e. taxes you owe after the bankruptcy was originally filed) normally cannot be added to a Chapter 13 Plan. Also, tax refunds during a Chapter 13 are normally given to the debtor, even if that debtor owes old taxes, since those old taxes are dealt with in the Plan and the Bankruptcy Code prohibits the IRS/State from seizing refunds of people in Chapter 13.

So, it is likely that you will receive the $1,000 state refund even though you have old state tax liability in the Chapter 13 Plan.

Chapter 13 debtors in that situation normally use the state refund to pay toward the federal liability, and then contact the IRS to set up payments on the remainder of the federal liability.

However, some Plans are drafted where the debtor has to pay all or a portion of tax refund(s) to the Trustee to help fund the Plan. So, you would need to see if your Chapter 13 Plan has any provision requiring you to pay all or a portion of the refund to the Trustee, and if not, then you could pay a good chunk of the federal liability off with the state refund and then try to set up reasonable payments with the IRS on the rest.

Obviously we can't give legal advice on this website, only provide information, so for advice you should consult your attorney.

Thanks!
Joe

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