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socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 38895
Experience:  Attorney and Real Estate Broker -- Retired (mostly)
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FOR SOCRATEASER ONLY I am also in Ch 13 and the amount PayPal

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I am also in Ch 13 and the amount PayPal claims to be owed is listed as a post-petition debt. How does this change the picture ?

Hello again,

If you mean that this PayPal debt was listed as a consumer debt, which can be discharged ad the completion of your Ch. 13 plan, then I don't see that it matters to your tax argument, or to the bankruptcy.

You could sue PayPal in bankruptcy court, allege and prove that its debt is not a debt, but a theft of PayPal property by a third party, and if you win, then you could modify your Ch 13 plan and remove the debt entirely. This may not be worth the hassle, unless PayPal owes you enough money that it has setoff from your account, to justify your suing for conversion and for punitive damages. In other words, it may be better to do nothing, just to get out from under the debt without spending any more dough on attorney's fees and costs of suit.

And, by discharging the debt in bankruptcy, you also discharge any tax liability for that debt -- so that's something else to consider -- because it means you don't have to report the 1099-K income as income, since it's being cancelled in bankruptcy.

Anyway, that's the broad brush. Hope this helps.
Hope this helps.

Customer: replied 3 years ago.

The PayPal "debt" is post-petition

You said that the debt is "listed." To me that means it's provided for in your bankruptcy plan, and it's postpetition debt, so under Bankr. Code 1305(a)(2), it will be discharged at the completion of your payment plan.

If you just mean that the debt is postpetition and it is not part of your bankruptcy plan, then you can sue PayPal in bankruptcy and prove that the "debt" is no debt at all, because you don't owe PayPal anything. Assuming that win, then the court will declare the debt void. which means you won't owe anything, regardless of whether or not it's listed.

Hope this helps.
Customer: replied 3 years ago.

Sorry for my confusion. The "debt" arose after I filed CH 13, but I filed an amended plan and included it in the amendment. My understanding has been that all this provided me was that the "creditor" could not pursue collection while I was in Ch 13. Is that not correct ? Thanks for your patience.

There are only two types of postpetition debts that can be included in a debtor's Ch. 13 plan (Bankr. Code 1305(a)):

  1. for taxes that become payable to a governmental unit while the case is pending; or
  2. that is a consumer debt, that arises after the date of the order for relief under this chapter, and that is for property or services necessary for the debtor’s performance under the plan.

Your description of this PayPal debt fits within neither of the above-described debts. Consequently, your bankruptcy plan should not have been confirmed. However, if it was, and neither the creditor or the bankruptcy trustee objects, then the debt will be discharged at plan completion and you will be free of the debt.

In theory, the creditor or trustee could object that your addition of the debt was made in bad faith and that your entire bankruptcy should be dismissed. The convoluted nature of your legal issue makes the likelihood of bad faith low, but it's a possibility, so I feel obliged to identify it for you.

But, if you just want to ride out the plan and see what happens, then you can do it, and if the debt is discharged, then you are done with PayPal.

Hope this helps.
Customer: replied 3 years ago.

One final question: Am I correct in assuming that I convert to a Ch 7 and dispense with the matter altogether ?

Yes, you can convert to Ch. 7 and discharge all of the debts, both pre and postpetition.

Hope this helps.
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