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Chapter 13 |
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Chapter 13 |
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Part 25. Special
Topics
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Chapter 17. Bankruptcy
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Section 13. Bankruptcy
Processing of Chapter 13 Cases
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25.17.13 Bankruptcy Processing of
Chapter 13 Cases
- 25.17.13.1
Introduction
- 25.17.13.2
Chapter
13 Eligibility
- 25.17.13.3
Preliminary
Issues
- 25.17.13.4
Pre-Confirmation
Compliance Efforts
- 25.17.13.5
The
Chapter 13 Plan
- 25.17.13.6
After
Confirmation
- 25.17.13.7
Monitoring
the Chapter 13 Plan
- 25.17.13.8
Postpetition
Tax Liabilities
- 25.17.13.9
Court
Intervention
- 25.17.13.10
The
Chapter 13 Discharge
- 25.17.13.11
Distribution
of Funds
25.17.13.1 (09-01-2004)
Introduction
1.
Reorganization of Debts for Individuals. A
Chapter 13 bankruptcy represents a voluntary
reorganization of debts for individuals. The
debtors, who retain all of their assets, commit a
portion of their future income to repay creditors.
Proceedings range from 36 to 60 months, with 60
months being the most common timeframe. This chapter
is not available to corporations or partnerships,
but only to individuals (wage earners and sole
proprietors).
2.
Chapter 13 Trustee. A
court-appointed trustee oversees the administration
of a Chapter 13 bankruptcy. Because the trustee is
an integral player in a Chapter 13 bankruptcy, an
ongoing dialogue should be established with the
trustee so administrative problems can be addressed
and resolved early. The Chapter 13 trustee:
A.
is an agent
of the court;
B.
oversees
the fair and economical administration of cases;
C.
ensures all
creditors receive an equitable distribution;
D.
receives
periodic payments from the debtor; and
E.
distributes
periodic payments to creditors.
3.
Protection of the Government's Interests. Sometimes
the interests of other creditors compete with the
interests of the
25.17.13.2 (09-01-2004)
Chapter 13 Eligibility
1.
Criteria.
11 U.S.C. § 109(e) describes four tests the debtor must meet to file under
Chapter 13:
a.
The debtor
must be an individual, or an individual and spouse,
who can file jointly; exceptions,
a stockbroker or a commodities broker
cannot be a debtor in Chapter 13;
b.
The debtor
must have regular income (including income from
self-employment);
c.
Secured debts must total less than $922,975; and
d.
Unsecured debts must total less than $307,675.
Note:
These limitations became effective
2.
Eligibility/Automatic Adjustments. As
required under 11 U.S.C. § 104(b), the Chapter 13
dollar amounts are automatically adjusted at
three-year intervals to reflect changes in the
Consumer Price Index. As required under 11 U.S.C. §
104(b)(2), the next three-year automatic adjustments
of the dollar amounts affecting the eligibility of a
debtor to file Chapter 13 will occur on
25.17.13.3 (09-01-2004)
Preliminary Issues
1.
Pre-Bankruptcy Collection Actions. Activity
in other Compliance functions may be pending or
ongoing when the bankruptcy is filed (for example, a
revenue officer may have outstanding levies).
Coordination between Insolvency and the Compliance
functions taking collection actions help the
·
the Service
must protect taxpayers' rights by avoiding actions
in violation of the automatic stay
·
if a
violation of the stay occurs, the
2.
Levy Issues.
In general, the Service should release all levies immediately upon learning
of the bankruptcy. Any funds levied upon, but not
paid over, or property seized, but not yet sold, are
property of the bankruptcy estate and should be
turned over to the court. Insolvency should contact
Counsel on a case-by-case basis, as necessary, when
serious levy issues arise. See
3.
Adequate Protection. Although
used infrequently in a Chapter 13 bankruptcy, in
cases where levied funds are significant, or the
property is easily liquidated or moved, adequate
protection may be considered. Also,
Insolvency may propose a request to lift the stay if
a debtor’s ability to complete the plan is
questionable. Insolvency should confer with Counsel
on unusual situations of this nature.
Note:
A detailed discussion of adequate
protection and cash collateral, more common in
Chapter 11 proceedings than in Chapter 13, can be
found in
25.17.13.4 (09-01-2004)
Pre-Confirmation Compliance Efforts
1.
In-Business Monitoring. In
jurisdictions experiencing substantial delays prior
to confirmation, Insolvency should monitor
in-business taxpayers prior to confirmation.
Business Master File (BMF) liabilities can be
tracked systemically using TC 136. If the
confirmation occurs very soon after the filing of
Chapter 13 bankruptcy, the use of TC 136 may not be
warranted. See
2.
Unfiled Returns. Unfiled
returns constitute a recurring problem in Chapter 13
proceedings, impacting staffing and resources. The
frequent need to resort to court actions and the
prevalence of non-compliance by debtors is a costly
burden to the government.
A.
Resolution Efforts. Local
procedures should be developed, in coordination with
Counsel, to reduce the number of unfiled returns.
B.
Outreach Efforts. Insolvency should use
outreach efforts to help resolve this problem.
Assistance and cooperation from the local bar
association and the trustee can be enlisted emphasizing
unfiled returns issues should be resolved prior to
confirmation.
25.17.13.5 (09-01-2004)
The Chapter 13 Plan
1.
Time Limitations. In
a Chapter 13 bankruptcy case, the plan may be filed
concurrently with the petition. If this is not the
case, the debtor must file
a plan within 15 days
of the petition date. Bankruptcy Rule
3015(b). Generally, required plan payments must
begin within 30 days
after filing of the plan. 11 U.S.C. §1326.
2.
Basic Plan Requirements. In
general, the plan should specify what each creditor
will be paid over the term of the bankruptcy, if
interest will be paid and at what rate, and other
conditions that affect the treatment of each
creditor. If all plan requirements are met, the
court must grant the debtor a discharge at the end
of the Chapter 13 proceeding.
25.17.13.5.1 (09-01-2004)
Notice of Plan and Hearing
1.
Court Notification to Creditors. Bankruptcy
Rule 3015 provides that the clerk of the court mail
a copy of the plan or a summary of the plan to each
creditor, along with the notice of the confirmation
hearing. Bankruptcy Rule 2002(b) provides for 25
days notice to
creditors of the hearing on confirmation.
Note:
An objection can be filed if a creditor
receives less than 25 days notice.
25.17.13.5.2 (09-01-2004)
Plan Requirements
1.
Plan Provisions. 11
U.S.C. § 1322 explains required provisions of a
Chapter 13 plan. An adequate
Chapter 13 plan will:
A.
provide the
trustee all, or a portion, of the debtor’s future
earnings for the repayment of debts;
B.
provide for
full payment of all priority claims under 11 U.S.C.
§ 507, unless the creditor agrees to a different
treatment;
C.
provide all
claims in the same class receive equal treatment;
and
D.
pay
creditors in installments for three years; or, if
requested and with court approval, complete all
payments within five years.
Caution:
Vague or ambiguous language in plans
should be flagged for possible objections. Counsel's
input should be sought if necessary.
2.
Additional Provisions. 11
U.S.C. § 1322(b) also sets forth permissive actions
that may be incorporated in the plan, including:
A.
modifying the rights of secured creditors (for example, paying a secured creditor the amount of its claim in deferred
payments instead of having the debtor surrender the
collateral); and
B.
making
provisions for certain postpetition
claims.
3.
Plan Confirmation Conditions. 11 U.S.C. § 1325 gives conditions under which
the court may confirm a plan. The court generally
confirms a plan if:
A.
all
provisions contained in the Bankruptcy Code are met
and all fees are paid;
B.
the plan is
proposed in good faith;
C.
unsecured
creditors will receive at least the amount to which
they would be entitled in a Chapter 7 bankruptcy;
D.
secured
creditors will receive their collateral or the
amount of their claim with interest, if paid in
installments; and
E.
schedules
indicate the debtor can make all plan payments.
4.
Commitment of All Disposable Income. Disposable income is the income remaining
after necessary expenditures for family maintenance
and business operations are deducted. If a plan
provides for less than full payment of unsecured
general claims, all
of the debtor's projected disposable
income must be committed to the plan payments.
Caution:
If
the plan is deficient in this respect, Insolvency
must consider if the deficiency will have a
significant adverse effect on the
25.17.13.5.3 (09-01-2004)
Plan Review
1.
Timely Review of Plan. Insolvency should review Chapter 13
confirmation plans prior
to the deadline for objections to ensure, if
an objection is necessary, the referral will be made
in time for the Service to be represented in
bankruptcy court. Once the plan is confirmed, the
provisions of the confirmed plan bind the
2.
Pre-Confirmation Trustee Plan Review. The
Chapter 13 trustee must review plans and the claims
that are filed prior to confirmation. The Service
should file proofs of claim as soon as possible
after a Chapter 13 petition is filed as confirmation
hearings are held soon after the Section 341 meeting
of creditors.
3.
Service Goals. Insolvency management should develop local
procedures which:
A.
emphasize
review of all plans with large tax liabilities
and/or unusual or significant case issues (see
B.
minimize
inappropriate treatment of
C.
are
coordinated with Counsel; and
D.
communicate
to the trustee and the bankruptcy bar, by use of
local outreach efforts, the types of plans
acceptable to the Service and those that will be
opposed.
4.
" Provides for" – Plan Provision Problem. Frequently,
Chapter 13 plans include a provision stating all
priority debts under 11 U.S.C. § 507 will be paid
in full. Some courts have held such a provision
adequately "provides
for" priority tax debts;
consequently, they must be discharged under 11 U.S.C.
§ 1328(a), even if the plan
does not actually provide for any payments on the
tax debt.
5.
Timely Claims. Accordingly, the Service should file a claim prior to the bar date – or
preferably by the confirmation date (should
confirmation occur first) — whenever possible. This protects the
government's interests by ensuring priority and
other tax claims will be included and paid under the
plan.
Note:
Timely filing of proofs of claim may
require securing delinquent returns, or if returns
are not received, filing an unassessed (estimated)
proof of claim.
6.
Unacceptable Plan. If
the plan does not provide for appropriate payment of
the Service's claims, Insolvency should request an
objection to confirmation. See
7.
The Chapter 13 Superdischarge. 11
U.S.C. § 1328(a) entitles a Chapter 13 debtor to a
discharge after the debtor completes all payments
due under the plan.
Caution:
No
exceptions to discharge are codified for priority
taxes as in Chapters 7 and 11. For this reason, a 11
U.S.C. § 1328(a) discharge is often called a superdischarge. Therefore, to protect the government's
interests, plans must be examined as early as
possible so an objection may be considered promptly.
25.17.13.5.4 (09-01-2004)
Objecting to a Plan
1.
Objection/Negotiations. When
a plan is judged as inadequate, an objection must be
considered. The objection may be raised by:
a.
Insolvency's
negotiating acceptable terms with the debtor’s
attorney prior to confirmation, thus avoiding
potential litigation;
b.
objecting
to the plan at the 11 U.S.C. § 341 meeting; or
c.
making a
referral, requesting a formal objection be made to
the plan.
2.
Referral System. Insolvency
must have an efficient system in place for routing
referrals, allowing for adequate control and timely
actions through use of the AIS "referral"
screen. Insolvency and Counsel should work together
to coordinate such efforts. All referrals must
include the debtor's
Reminder:
Referrals to local Counsel should
address case-specific questions, not policy or
procedural issues set forth by National Office.
3.
Insolvency Responsibilities. When
an objection is in order, Insolvency should:
A.
refer to the local bankruptcy court rules
controlling the case for timeframes to object;
B.
make prompt contact with the debtor's attorney
to attempt informal resolution; and
C.
if appropriate, consult with Counsel on the
proper method for a formal objection.
4.
Objection to Plan Factors. Dollar criteria, special circumstances, and
local guidelines may be established to control the
number of plan objections.
5.
Timely Objections. Once
a decision is made to object to confirmation, the
objection must be made timely
to give the Service's legal representative
adequate notice to prepare a quality objection to
plan.
6.
Unfiled Returns. Filing
an objection to confirmation is not always feasible.
In cases involving delinquent returns, a referral
seeking a motion to compel
the debtor to file may be considered. In some
Insolvency areas, trustees and the
7.
Outreach Efforts. Outreach
to Insolvency stakeholders can be an integral part
of the local Insolvency program. Personal
interactions with trustees and bar association
members should foster cooperation of all parties and
address issues of mutual concern.
25.17.13.5.5 (09-01-2004)
Reasons to Object
1.
Protection of the Government's Interests. In
many jurisdictions, the Chapter 13 trustee assures
the court the plan meets the conditions listed under
11 U.S.C. § 1325. However, the trustee might not
object to a plan that adversely affects an
2.
Ineligibility. One ground for filing an objection is "ineligibility.
" A debtor may be ineligible for
Chapter 13 relief for several reasons, but commonly
the debtor's liabilities exceed the dollar
limitations for a Chapter 13 proceeding. The
following examples demonstrate cases ineligible for
Chapter 13 filing.
A.
The total
of the debtor's unsecured debt exceeds
the limitation for unsecured debt in a
Chapter 13 bankruptcy.
B.
The
entity's name on the petition is a name
of a partnership, which research confirms; but a
partnership is not eligible to file Chapter 13.
C.
The
debtor's occupation is listed in court filings as a
stockbroker. A stockbroker is not eligible to file a
Chapter 13 bankruptcy.
3.
Plan Concerns. Additional reasons the Service may object to
confirmation include the following:
A.
the plan
fails to meet the requirements of 11 U.S.C. §§
1322 and 1325 (for example, priority and secured
claims will not be paid in full);
B.
the debtor
has not filed a required prepetition tax return –
especially critical if a balance due is anticipated;
C.
the plan is
not feasible given the debtor's current income,
expenses, and future tax obligations;
D.
the plan
proposes a balloon payment;
E.
the plan
discriminates against the
F.
the plan
proposes payments outside of
the plan;
G.
the plan
proposes to abandon collateral to the government or
proposes to distribute property in lieu of cash;
H.
the plan is
to be modified by the debtor after confirmation;
such a modification could impair the government’s
claim; or
I.
the plan
proposes less than full payment of all unsecured
general tax claims and
provides for less than all of the debtor’s
disposable income, as defined in 11 U.S.C. §
1325(b), to fund the plan.
4.
Deficient Plans - Exceptions. In
exceptional cases the Chapter 13 debtor may be
unable to pay the
Example:
If a taxpayer files a Chapter 13
bankruptcy to prevent foreclosure on the family
residence, and conversion to a Chapter 7 case will
result in minimal or no payments toward the
5.
Unacceptable Deficient Plans. Under
no circumstances will the
·
the plan
does not provide for the payment of claims with
lower priority than those of the
·
all income
not necessary for the health and welfare of the
debtor's family or the production of income is
committed to the plan
6.
Decision Factors for Evaluating Deficient Plans. The
following considerations should be weighed before
deciding to agree to treatment of the
·
debtor's
ability to pay the
·
debtor's
compliance with filing requirements
·
probability
the plan will pay the
·
debtor's
probable ability to continue making payments over
the time remaining on the CSED
·
feasibility
of the proposed plan of reorganization
·
existence
of factors precluding the debtor from dismissing the
bankruptcy and submitting an administrative offer in
compromise
Example:
The
·
dischargeability
of the tax liabilities
·
agreement
by other creditors with the same priority, such as
state taxing authorities, to receive less than full
payment of their claims
7.
Acceptance of Deficient Plans. If
a debtor demonstrates agreeing to treatment
different than is statutorily required under the
Bankruptcy Code is in the government's best
interest, the specific payment terms must be
incorporated into the debtor's plan of
reorganization and are subject to the approval of
the bankruptcy court. The plan must also provide
statements asserting:
.
the Service
has affirmatively agreed to treatment of its claim
that differs from the treatment required under the
Bankruptcy Code;
A.
the debtor
will comply with all filing requirements and
withholding and estimated tax payment requirements
during the life of the plan; and
B.
the
government's rights to collect upon a default in
plan payments.
Note:
The AIS history must reflect the factors
considered in the decision to accept treatment of
the
8.
Burden Falls to the Debtor. Unless the Chapter 13 debtor timely provides
information to Insolvency demonstrating the
inability to pay the
9.
Contents of Objection Referral. The
referral to Counsel objecting to the plan must state
the actions taken to resolve plan deficiencies with
debtor's counsel. These may include:
·
the debtor
did not demonstrate acceptance of a deficient plan
is in the government's best interest
·
the debtor
did not provide sufficient information to make such
a determination
·
the
debtor's payment proposal is not feasible
·
the tax
claims are nondischargeable and full collection is
likely outside of bankruptcy
25.17.13.5.5.1 (09-01-2004)
Large Dollar Case Reviews
1.
Periodic Large Dollar Reviews. All
large dollar cases must initially be reviewed in
depth in a timely fashion. Thereafter, periodic
reviews of large dollar cases, according to local
guidelines, should be a regular part of the Chapter
13 program. If a debtor exceeds the debt limitations
for a Chapter 13 bankruptcy, the case can be
dismissed or converted to another Chapter.
Reminder:
In a Chapter 13 superdischarge, the
debtor receives a discharge of all
debts provided for in the plan, even if they are not
all full paid.
25.17.13.6 (09-01-2004)
After Confirmation
1.
Property of the Estate. 11 U.S.C. §1327 explains the effects of
confirmation. All property of the estate vests in
the debtor upon confirmation unless
the plan or order confirming the plan
provides for different treatment. Property that
vests in the debtor is free of any debt provided for
in the plan.
2.
Terms Binding. The
Reminder:
It is critical to object to the plan before
confirmation when an objection is appropriate.
3.
Modifications. The
25.17.13.6.1 (09-01-2004)
Modification of Plan
1.
Plan Modified. The plan may be modified after confirmation,
but before full payment, to increase or reduce the
amount of payments, to extend or reduce the time for
such payments, or to alter the amount of the
distribution to a creditor.
A.
Payments
may not extend beyond three years after the date the
first payment is remitted under the original
confirmed plan, or beyond the extended five–year
period as approved by the court.
B.
11 U.S.C.
§ 1329(a) provides the debtor, the trustee, or an
unsecured creditor may request modification of a
confirmed plan.
C.
Insolvency
should scrutinize a plan modification as carefully
as an original plan.
D.
If
modification is not acceptable to the Service, a
timely objection to the modified plan should be
raised. Insolvency should consult Counsel for advice
as necessary.
Caution:
In
many jurisdictions, post-confirmation modifications
will not be considered when an objection should have
been raised prior to confirmation. Once confirmation
has occurred, the court is less inclined to allow a
change in the plan, unless some significant change has developed
since confirmation. See
25.17.13.6.2 (09-01-2004)
Impact of the Automatic Stay
1.
Duration of the Automatic Stay. The
automatic stay is not
lifted at confirmation in a Chapter 13 proceeding,
but continues until the case is dismissed,
discharged, or closed by the court. Therefore,
contacting the debtor for demand of payment and
collection of prepetition liabilities may be
prohibited. See
Note:
The stay may be lifted to grant a
creditor temporary
relief from the stay.
2.
Postpetition Payments for Prepetition Taxes. Acceptance
of postpetition payments in a Chapter 13 bankruptcy
proceeding for prepetition taxes may violate the
automatic stay. Thus, postpetition tax payments for
prepetition taxes usually should be made through the
Chapter 13 trustee. Insolvency may confer with
Counsel if this matter arises.
3.
Prepetition Installment Agreement. Payments
on a prepetition installment agreement generally
should not be
accepted from a Chapter 13 debtor after
the debtor has filed for bankruptcy. Counsel
may provide guidance, as needed.
4.
Debtor Spouse and Non-Debtor Spouse/Joint Return. To
minimize chances of a violation of the Bankruptcy
Code occurring, a TC 520 freeze code should be input
on the jointly-filed balance due account even when
only one of the spouses is in bankruptcy. See (5), CSED
Indicators, below. However, Insolvency
must address issues relating to debtor and
non-debtor situations (for example, CSED concerns
and community property issues). Counsel advice
should be sought, as necessary.
5.
CSED Indicators. To
identify if one or both spouses have filed
bankruptcy (on a joint balance due return),
indicators are input on the tax module following the
TC 520. This information allows for proper Collection
Statute Expiration Date (CSED) extensions
and bankruptcy tolling in the event of multiple
bankruptcies. The appropriate IMF
CSED
·
"
P
" indicates the CSED applies to the primary
taxpayer
·
"
S
" indicates the secondary
taxpayer
·
"
B
" identifies both
taxpayers as having filed bankruptcy jointly
6.
CSED Issues and Considerations. Periodic CSED monitoring of the non-debtor
spouse must be conducted by Insolvency.
See
A.
Insolvency may issue an Other
Investigation (OI) to field Compliance to
determine collection potential from the non-debtor
spouse or to protect the CSED, if the collection
statute is a concern.
B.
The delinquent account could be addressed in the
debtor's plan.
C.
The non-debtor spouse may continue with a
previously-approved payment agreement with the
Service (if applicable).
D.
If the non-debtor spouse makes payments on the
joint tax liability in addition to the debtor spouse
making plan payments through the trustee, Insolvency
must amend the Service's claim periodically to
update the claim amount(s) for the court.
Note:
If
a CSED is imminent or has passed, management must be
informed.
7.
Decision to Retain Payment or Return Payment. A
payment may be received by the Service from a source
other than the trustee after the bankruptcy filing.
If research indicates a balance due account on a
joint liability, yet only
one spouse is in bankruptcy, Insolvency
should:
.
determine
who submitted the payment (the debtor or the
non-debtor spouse?);
A.
try to determine the designation or intent of
the payment to decide if
B.
take precautionary measures so the debtor's
rights are not violated; and
C.
consult Counsel when legal advice is required.
8.
Field Contact With Insolvency. Field
Compliance employees may not take any collection
action after a taxpayer has filed Chapter 13 unless
that action is cleared with Insolvency. Employees in
field Compliance must contact Insolvency promptly
after a taxpayer has filed a bankruptcy to determine
if any information or advice is needed. If
necessary, Insolvency will elevate complex or
unusual situations to Counsel. See
Caution:
Collection
must be stayed on any prepetition tax debt. Every
effort must be made to ensure enforcement actions
are not taken against the debtor (e.g., notice,
lien, levy) while the debtor is under the protection
of the bankruptcy court.
25.17.13.7 (09-01-2004)
Monitoring the Chapter 13 Plan
1.
Monitoring of Plans. To
protect the government's interests, Insolvency
management should have a monitoring program in place
to determine if the debtor is adhering to the
provisions of the plan after confirmation.
A.
AIS Plan Monitoring. In
most jurisdictions, trustees provide their own plan
payment monitoring systems to default Chapter 13
debtors who fail to make payments. However,
Insolvency can, and should, use AIS to ensure
quality plan monitoring and payment processing. The
debtor's plan must be monitored to ensure all
provisions are being met (e.g., the plan honors
current tax obligations, or the debtor stays current
with plan payments, etc.).
B.
Dismissal.
With a severely non-compliant debtor, the Service may seek dismissal. See
2.
Service Commitment. Insolvency
should take a balanced approach to resolve
post-confirmation non-compliance. Bankruptcy can
provide a fresh start to the motivated debtor, and
the Service is committed to helping in this effort
within the context of the Bankruptcy Code.
Bankruptcy can resolve the debtor's current
financial problems and promote voluntary compliance
with federal tax laws.
3.
Collection Actions Prohibited. Systemic
notices and collection actions for prepetition taxes
are not appropriate because confirmation in a
Chapter 13 proceeding does not lift the automatic
stay. See
Note:
One informational notice is allowed.
4.
Postpetition Liabilities and Property of the Estate. Collection
of postpetition tax liabilities of a Chapter 13
debtor is complicated by a division among courts
concerning what is considered "property of the
estate" after confirmation. Some court cases
have granted
5.
Impact of Bankruptcy Estate Interpretations. After consultation with Counsel, as necessary, Insolvency must determine the
most appropriate and
effective actions to be taken regarding postpetition
tax liabilities within the boundaries, if any,
imposed by the court. The legal interpretation of
the "bankruptcy estate" in a given area
will determine the course of action taken by the
Service.
6.
Imminent Plan Default. If
a debtor has defaulted on payments or payments do
not conform with plan provisions, Insolvency should
contact the Chapter 13 trustee to question the
reasons behind the default. The
debtor should not be contacted concerning missed
payments. If the problem appears to lie
with the trustee's office and not with the debtor's
failure to make timely payments, Counsel
intervention may be required.
7.
Alternatives. After attempting to resolve plan problems and
issues through the trustee, Insolvency, along with
Counsel if appropriate, should determine if
additional actions are required. These actions
(initiated through Counsel) may include a request to
modify the plan, a request for dismissal of the
case, or an attempt to convert the case to a Chapter
7 proceeding. Decisions are made on a case-by-case
basis.
8.
Conversion/Dismissal Considerations. If
the debtor is not adhering to the plan, and the plan
is not modified, Insolvency may consider
conversion/dismissal motions, particularly in cases
of egregious non-compliance. Counsel may be
consulted on a "need to" basis before the
formal referral is forwarded. The bankruptcy court
is more likely to give favorable consideration to
the Service's conversion/dismissal motion if made in
the early stages of a bankruptcy, rather than toward
the end.
25.17.13.7.1 (09-01-2004)
Property of the Estate after Confirmation
1.
Bankruptcy Code Guidelines. Insolvency should become familiar with three
sections of the Bankruptcy Code affecting the
determination of "property of the estate"
after confirmation.
a.
11 U.S.C. § 541 . The property of the
estate includes virtually all property in which the
debtor has an interest at the time the petition is
filed, including property in another's possession
and community property.
b.
11 U.S.C. § 1306. Included
in property of the estate is any property acquired
after the petition date but before the case is
closed, dismissed, or converted, including wages and
other income.
c.
11 U.S.C. § 1327 . Assets revest in
the debtor at confirmation, unless otherwise
specified in the plan or confirmation order.
2.
Service Position – Property of the Estate in a Chapter 13 Proceeding. The Service's position, generally, is after
confirmation, the bankruptcy estate is limited to
the portion of the debtor's income or other earnings
necessary to fund the plan.
A.
Case law reflects various other positions on
this issue, including both the position that all of
the debtor's property remains in the estate
post-confirmation and the position that only
property acquired post-confirmation remains in the
estate.
B.
The plan can provide that property remains in
the estate.
C.
Counsel's advice should be sought when
clarification is required on this subject.
3.
Community Property. In
community property states, property of the estate
includes postpetition community property acquired by
the non-debtor spouse.
4.
No Separate Taxable Entity in a Chapter 13. Although
the bankruptcy estate is a separate taxable entity
upon the filing of petitions by individuals under
Chapters 7 and 11, no separate taxable entity exists
in a Chapter 13 case. See I.R.C. §§1398 and 1399.
As a result, separate tax returns (Form 1041) are not
filed for Chapter 13 estates.
5.
Allowed/Disallowed Post-Confirmation Actions. After
confirmation, the Service can generally file tax
liens to collect postpetition
taxes. To avoid litigation on the issue of whether
filing tax liens for postpetition taxes violates the
automatic stay, the notice of federal tax lien
should include an annotation stating, "This
Notice of Federal Tax Lien is not being filed with
respect to property while it remains property of the
bankruptcy estate of the taxpayer." In some
jurisdictions, the Service can administratively
seize real estate or tangible property to collect
post petition liabilities, but cannot take
collection against property committed to the plan or
needed by the debtor to make payments to the
trustee. Wage levies should exclude the amount
needed to fund the monthly plan.
Caution:
The
Service must be wary of taking collection actions
that interfere with funding the Chapter 13 plan.
Even if assets are not property of the estate,
collection may impair the debtor's ability to fund
the plan (for example, seizure of a debtor's
business) and may be prohibited by the bankruptcy
court.
6.
When Property Remains Property of the Estate.
.
Local Law.
Where local law provides all property remains property of the estate after
confirmation, no collection action for postpetition
taxes is permitted unless relief is obtained from
the automatic stay.
A.
Plan Provision. If
the debtor's plan provides all property remains
property of the estate after confirmation, no
collection action may be taken against such
property. Any notices of federal tax lien filed with
respect to postpetition liabilities should include
an annotation the lien does not attach to property
of the estate. See paragraph (5), above.
7.
Seek Counsel Advice. In
any collection action contemplated against a Chapter
13 debtor (or any debtor in a bankruptcy),
Insolvency should seek the advice of local Counsel prior
to taking distraint action . The debtor
is under the protection of the bankruptcy court, and
the debtor's rights must be protected.
25.17.13.8 (09-01-2004)
Postpetition Tax Liabilities
1.
Postpetition Tax Liabilities. Taxes incurred after the date of the
bankruptcy filing are generally considered to be postpetition
tax liabilities. The Service's position
is the accrual date
, not the date of the assessment nor the date
the tax was payable, determines whether an account
is considered a pre– or a post– petition
liability.
Example:
A 2003 income tax (balance due) return
has a year ending of
2.
Factors and Considerations. Postpetition
tax liabilities are handled in various ways by the
Compliance units in the territories (e.g., Campuses
and Insolvency units). In all cases, however, the
local Insolvency unit should be contacted to ensure
the appropriateness of actions contemplated against
debtors in bankruptcy.
3.
Important Considerations. The Service can deal with postpetition tax
liabilities in several ways, and in determining
which option to exercise, Insolvency must consider:
A.
if the
automatic stay is in effect, and if the CSED is
tolled or running;
B.
the amount
owed;
C.
the
debtor's ability to pay;
D.
the
debtor's past compliance history; and
E.
if the plan
is just beginning or has progressed to later stages.
4.
Local Level Considerations. At the local level, various factors play a
role in determining how Insolvency handles
postpetition liabilities. Factors for Insolvency to
consider are:
A.
local
Insolvency staffing and resources;
B.
local field
Compliance staffing and resources;
C.
Counsel's
staffing, resources, and recommendations;
D.
the level
of cooperation with the trustees and the local bar
association in the area;
E.
the
commitment, activity, and success of local outreach
efforts;
F.
established
procedures and guidelines among the various Service
functions and their effectiveness ; and
G.
the
existence of any local rules/agreements and standing
orders.
5.
Approaches.
Insolvency units may use various approaches when dealing with postpetition
tax liabilities, including these options:
·
filing 11
U.S.C. §1305 claims (requires a motion to modify
plan) — see (7) below and also
·
sending OIs
to ROs for investigatory and possible collection
actions (may require lifting of stay)
·
referrals
for Substitute for Returns (SFRs) — actions to
complete may be prolonged
·
filing a
motion to lift the automatic stay — requires court
intervention
·
preparation
of 6020(b) returns —a time-consuming process
·
referrals
for motions to convert or dismiss — determined on
a case-by-case basis (e.g., conversion due to
ineligibility for Chapter 13 or dismissal due to
continual non-compliance)
·
assertive
actions by trustees — some trustees will initiate
dismissal actions when debtors are accruing
postpetition liabilities
·
administrative
collection against exempt property or property not
used to fund the plan (collection from specific
assets)
·
exploring
alternatives with debtor prior to distraint
action(s)
·
installment
agreement
·
modification
of plan
Caution:
If
the debtor refuses to modify the plan or is
negligent in doing so, the Chapter 13 trustee may
pursue modification in the bankruptcy court. The
·
pursuing
collection from the non-debtor spouse in a joint
income tax return filing (except
in community property states where this is
disallowed. See
·
local
outreach efforts with the courts, trustees, and
local bar associations
·
waiting to
pursue administrative collection outside of
bankruptcy
Note:
Some of these options may not be
available in some jurisdictions.
6.
Payments Made Outside the Plan. The
.
Such an
arrangement is solely between the debtor and the
A.
If an
installment agreement is entered into, the trustee
will not oversee these payments.
B.
The Service
should generally discourage this option since
default on plan payments allows the Service to move
to convert or dismiss. Those remedies are not
available in side-agreements.
C.
Also, if
additional funds are available, the debtor should
use them to pay unsecured general claims; the debtor
is expected to dedicate all disposable income to
fund the plan per provisions of the Bankruptcy Code.
7.
Payment through the Trustee. Insolvency may request payment of postpetition
debt through the court by filing a 11 U.S.C. §1305
claim. Although §1305 claims may be accepted as
filed, they are not always paid. Some debtors fail
to modify the plan to include the postpetition
liabilities, complicating the discharge process. In
addition, CSED concerns can be created for the
Service with the filing of 11 U.S.C. § 1305 claims.
Refer to
8.
Property of the Estate — Legal Interpretations. Collection
of postpetition tax liabilities of a Chapter 13
debtor is complicated by a division among the courts
defining "property of the estate" after
confirmation. However, some courts have allowed the
9.
Note:
The Service is not prohibited from
pursuing collection from a non-petitioning spouse.
See
10.
Post-Discharge Administrative Collection. The
Service may choose to do nothing to collect the
postpetition tax debt(s) until the Chapter 13 debtor
receives a discharge. The Service may then attempt
to collect the tax administratively. Postpetition
taxes will not be discharged, unless
provided for in the plan.
.
The debtor
is disadvantaged if the
A.
The debtor
may be in a better financial position after
discharge to pay the taxes due, but the reverse
could be true as well.
B.
Serious
collection statute complications and issues may
arise.
Caution:
The
CSED may not be tolled by the bankruptcy since the
automatic stay does not absolutely prohibit the
collection of postpetition liabilities not provided for in the plan. Counsel can provide guidance.
11.
Discharge Provisions of 11 U.S.C. § 1328(a). Only
prepetition claims provided for by the plan, which
have been filed and allowed or disallowed, and
postpetition 11 U.S.C. § 1305 claims provided for
by the plan, are discharged by § 1328(a).
25.17.13.8.1 (09-01-2004)
Collection from Specific Assets
1.
Other Investigations. Insolvency
has the option to request an Other
Investigation (OI) from field Compliance
employees when property, not specifically retained
in the estate, is available to effect collection.
Example:
The Service may consider issuing an Ol
for distraint action, with Counsel guidance and
concurrence, after alternatives have been
considered. If a levy/seizure is to be done, lifting
of the automatic stay may be required.
2.
Benefits of Distraint Action:
·
outstanding
postpetition tax debts can be collected after
confirmation and applied towards the taxpayer's tax
debt(s) to reduce taxpayer burden
·
stay
violations can be minimized by taking collection
action against targeted property which is not
property of the estate
·
future tax
compliance can be promoted and encouraged by the
deterrent effect of distraint actions
3.
Risks of Distraint Action:
·
generally, few assets merit collection activity in a typical Chapter 13 case
·
analyses
can be time-consuming
·
Insolvency
may need to review each plan and confirmation order
to ensure specific property was not retained (a
resource problem)
·
collection
actions that may prevent the debtor from completing
the plan may still be challenged (for example, a
seizure of the debtor's business may be challenged
in court because it has an adverse effect on
completion of the confirmed plan)
·
Compliance
personnel, unfamiliar with the bankruptcy case or
provisions of the Bankruptcy Code, may violate the
stay by making a demand for payment of prepetition
taxes or by applying payments to prepetition tax
liabilities instead of to postpetition debts
·
a lifting
of the stay, requiring court approval, may still
have to be requested to avoid any legal
repercussions
25.17.13.8.2 (09-01-2004)
Section 1305 Claims
1.
Postpetition Tax liabilities — 11 U.S.C. § 1305. Chapter
13 specifically provides for postpetition debt in 11
U.S.C. §1305. This section of the Bankruptcy Code
allows tax liabilities becoming payable while the
case is pending to be claimed in Chapter 13 cases.
(Most other postpetition creditors in a Chapter 13
bankruptcy cannot file a claim in the bankruptcy
proceeding.)
2.
Who Can File
. Under 11 U.S.C. § 1305 only tax claimants (for example, the
3.
Classification. A
11 U.S.C. §1305 claim is treated as a prepetition
priority claim.
4.
Not " Admin" Claim. Claims for postpetition taxes should not
be filed as administrative claims because the
Service views postpetition taxes as constituting a
liability of the debtor, rather than the estate.
5.
Interest and Penalties. Interest
and penalties are not usually claimed on § 1305
claims. However, local practice varies.
6.
Bar Date.
§ 1305 claims have no bar date, but local procedures may set time
limitations.
7.
Form to Use.
Counsel's assistance may be needed to determine the correct form to use in a
particular Insolvency area. However, Form
B10, Proof of
Claim, and Form
10 Attachment usually may be used for
this purpose.
8.
Statement on Claim. A
statement should be entered on each § 1305 claim to
identify for the court the type of claim being
filed.
Example:
" THIS
CLAIM IS BEING FILED UNDER THE AUTHORITY OF TITLE 11
U.S.C. SECTION 1305.
"
9.
Local Rules.
Insolvency employees must understand local rules/agreements or standing
orders affecting the treatment of postpetition tax
liabilities in their area.
10.
Benefits of Filing Section 1305 Claims:
·
the
possibility of violating the stay is lessened
·
collection
is achieved through the trustee
·
monitoring
of payments can be done systemically, using AIS
·
full
compliance may be achieved
·
future tax
compliance may be promoted
·
the Service
will be paid as a priority creditor
·
tax
delinquencies may not "follow " the
taxpayer out of bankruptcy to be collected
post-discharge
·
the debtor
is provided with a more thorough "fresh
start"
11.
Risks of Filing Section 1305 Claims:
·
in most
jurisdictions, the plan must be modified to provide
for the additional claim – some debtors fail to do
this, complicating the discharge determination
process
·
once
provided for in the plan, the tax liability may be
dischargeable
·
plan
modification may lower the amount the Service's
prepetition unsecured claims receive
·
the Service
may receive little or nothing for interest and
penalties
·
the trustee
may not pay § 1305 claims, because generally they
are filed after plan confirmation, and funds may not
be available to pay postpetition debts
·
§ 1305
claims require monitoring by Insolvency
·
due to the
high number of Chapter 13 cases and the high rate of
postpetition noncompliance, Insolvency's work
resources can become over-extended
·
serious CSED issues may arise, generally resulting in Counsel involvement
12.
Filing of a § 1305 Claim. Insolvency management sets local policy on
filing § 1305 claims based on economic feasibility.
If they are filed, § 1305 claims should be
monitored to track their effectiveness in collecting
postpetition tax liabilities.
Caution:
Even
though a § 1305 claim is technically allowed by the
court, it does not necessarily follow the
13.
Modification of Plan Based on a 11 U.S.C. § 1305 Claim. The
debtor should file a motion to modify the plan to
include the 11 U.S.C. §1305 claim. It is generally
beneficial for the Service to send a written
request to the debtor to advise of the need
for a modification of the plan so the Service can
file a § 1305 claim. A copy should be sent to the
debtor's attorney.
Reminder:
In some areas, the Chapter 13 trustee
may request the debtor to modify the plan to include
postpetition tax liabilities. The trustee, as well
as the
14.
Discharge under 11 U.S.C. § 1305. If
a claim is filed under § 1305 and
the debtor provides for the postpetition tax
claim by modifying the plan, upon completion of the
Chapter 13 plan, the debtor will receive a discharge
of these taxes under 11 U.S.C. § 1328(a). Only
through completing a Chapter 13 plan and receiving a
discharge under 11 U.S.C. §1328(a) will the debtor
obtain relief for these postpetition taxes.
15.
Collection Alternatives. The
Caution:
Measures
taken should not affect the funds the debtor has
available to pay the prepetition tax debts provided
for in the Chapter 13 plan. The Service may need to
obtain relief from the automatic stay. Insolvency
must consult with Counsel when this situation
arises.
25.17.13.9 (09-01-2004)
Court Intervention
1.
Motions Before the Court. In cases of serious postpetition
non-compliance, court intervention may be an
appropriate solution. Some of the court options the
Service may consider include:
A.
a motion to
convert the case to a Chapter 7 proceeding;
B.
a motion to
dismiss the case; or
C.
a motion to
lift the automatic stay (to allow distraint action).
Note:
For the benefit of all parties,
litigation should become an option only
after all alternatives have been explored.
2.
Counsel Coordination. Coordination
with Counsel must be maintained since the volume of
non-compliant debtors might overwhelm Counsel's
ability to file motions and to argue and resolve
issues.
3.
Benefits of Court Intervention:
·
possible
positive influence on the debtor's tax compliance,
present and future
·
debtor's
ability to remain in bankruptcy longer, improving
the debtor's overall finances and opportunity for a
fresh start
·
prohibition
of a bankruptcy filing for 180 days after the debtor
requests dismissal subsequent to a motion to lift
the stay. 11 U.S.C. § 109(g)(2)
·
seeking
relief through court action may be the only means,
not in violation of the automatic stay, to address a
debtor's non-compliance
·
avoidance
of damages against the Service due to the stay's
being lifted
4.
Risks of Court Intervention:
·
may be
expensive for the government
·
is time
consuming for all parties concerned
·
may
increase tax non-compliance due to delay (e.g.,
pyramiding of taxes could continue)
·
can delay
collection actions due to pending legal action
Note:
Courts may be unwilling to grant such
requests, at which point the Service's options are
limited.
5.
Protection of the Government's Interests. In
some cases, after a court motion is filed,
modification of the plan to pay a postpetition claim
may be an acceptable resolution. In
this event, to protect the government's interests,
the
.
a provision
requiring future compliance (for example, filing of
required tax returns);
a.
a provision
requiring a lifting of the stay to collect any
future liabilities;
b.
a provision
requiring proofs of deposit and/or estimated tax
payments; and/or
c.
a
modification of the plan that does not have an
adverse impact on the prepetition claims.
25.17.13.9.1 (09-01-2004)
Conversion
1.
Conversion to Another Chapter. A
debtor may convert from Chapter 13 to another
chapter as long as the debtor is eligible to file
under that chapter.
2.
Legal Requirement. A
court order is not required for a voluntary
conversion from Chapter 13 to Chapter 7. The debtor
is required only to file a notice of conversion.
Note:
The filing date of the notice is deemed
to be the date of conversion to Chapter 7.
3.
Creditor Election. A
creditor may also seek a conversion for cause,
though not often done in Chapter 13.
25.17.13.9.2 (09-01-2004)
Dismissal
1.
Revert to Pre-Bankruptcy Status. A
number of Chapter 13 debtors fail to complete their
plans. Upon dismissal, the stay of actions against
property of the estate terminates, and the tax
accounts revert to pre-bankruptcy status.
2.
Dismissal Requests by Debtor. The dismissal may be at the debtor's request.
Should a debtor request a dismissal, the court will
generally grant the dismissal unless
the case was converted from another chapter.
The
Example:
The debtor may seek to avoid the court's
authority in resolution of a levy dispute and wants
to be outside of the bankruptcy court's
jurisdiction. However, the Service, if it has a
strong case, may prefer the debtor remain in
bankruptcy so the court will have the authority to
make a ruling on disbursement of the levy funds.
3.
Dismissal Request by Trustee. The
Chapter 13 dismissal is often sought by the trustee
because the debtor is delinquent with plan payments,
or has compliance issues, such as unfiled tax
returns.
4.
Dismissal Request by Creditor. A
creditor has the right to request the case be
dismissed for cause.
For the Service, cause can include pyramiding
of taxes, unfiled returns, sporadic or chronically
late payments, or no payments.
·
Pyramiding — pyramiding of tax
liabilities, a recurring problem in Chapter 13
bankruptcies, is a common reason the Service seeks a
dismissal
·
Monitoring — Insolvency should
periodically monitor the case, per guidelines
established by local management, to detect plan
deficiencies, including allowance of pyramiding of
personal and business taxes
·
11 U.S.C.
§1307 lists some of the bases for requesting
dismissal in Chapter 13 bankruptcies
5.
Importance of Early Motion. If the pursuit of a conversion/dismissal
motion is appropriate, the Service should make the
motion as early as possible in the Chapter 13
bankruptcy process.
6.
Termination of Stay of Actions. Upon
dismissal:
·
the stay of
actions against property of the estate terminates
·
the trustee
usually returns all Chapter 13 payments, not
previously distributed to creditors, to the debtor,
minus trustee expenses
·
if a
controversy ensues over entitlement to property
after dismissal, the court has jurisdiction to
resolve the issue
25.17.13.10 (09-01-2004)
The Chapter 13 Discharge
1.
Two Types.
11 U.S.C. §1328 provides a discharge may be granted in one of two ways to a
Chapter 13 debtor:
a.
Superdischarge. When all plan payments are completed, the
debtor receives a "superdischarge. "
b.
Hardship Discharge. Exigent
circumstances may force the debtor to request a
"hardship discharge" when the plan cannot
be completed.
25.17.13.10.1 (09-01-2004)
Superdischarge
1.
Plan Completion. Under
11 U.S.C. § 1328(a), the court grants the debtor a superdischarge
upon completion of all plan provisions.
2.
Exceptions.
The debtor is discharged of all debts provided for by the plan or disallowed
under 11 U.S.C. § 502, except
:
A.
any
long-term debt (such as mortgage) provided for under
the plan, the last payment of which is not due until
after completion of the plan (11 U.S.C. §
1328(a)(1));
B.
debts for
alimony, maintenance, or support that are
non-dischargeable under 11 U.S.C. § 523(a)(5);
C.
student
loans that are non-dischargeable under 11 U.S.C. §
523(a)(8);
D.
drunk–driving
related debts that are non-dischargeable under 11
U.S.C. § 523(a)(9); and
E.
amounts
constituting restitution or fines included in a
sentence on the debtor's conviction of a crime. 11
U.S.C. § 1328(a)(3).
3.
Tax Debts Discharged. Generally,
when a superdischarge is granted, all tax debts
"provided for" in the plan, as well as any
disallowed tax claims (for example, untimely filed
claims), are discharged.
A.
The
B.
The best
corrective action is to object to confirmation,
whenever possible.
C.
Plans
should be reviewed prior
to confirmation so a timely objection may be filed
if the plan does not provide for all tax claims as
required by the Bankruptcy Code.
4.
Timeframe for Closing Actions. All
actions to close a case must begin within 30
calendar days after
receipt of a discharge order.
5.
" Provided for" but No Payments. Situations
arise when a liability is considered by the court to
be " provided for"
in the plan, but no payments are received because a
claim was not filed. This may result from Service
delay or for other reasons.
Example:
(a) TFRP.
A prepetition Trust Fund Recovery Penalty
(TFRP) may not have been determined until the bar
date for filing a claim has passed. Although the
Example:
(b) Inadequate
Plan – Minimal
Payments.
6.
Lack of Notice to the
7.
Adjustment Actions. Once
a discharge has been granted under 11 U.S.C. §
1328(a) and taxes are deemed to be dischargeable,
appropriate adjustments must be made to the
remaining balance due accounts "provided
for" in the plan. See
8.
Counsel Consultation. If
significant, complex discharge issues and questions
arise concerning tax liabilities after a debtor has
received an order of discharge, Insolvency should
confer with Counsel, as necessary.
Reminder:
Once the discharge has been granted, the
Service's options are limited.
9.
Vacating an Order of Discharge. One
option the Service may use, available only to
creditors, is taken infrequently. The court can
vacate an order of discharge when the Service was
not paid as required in the plan, and
the discharge order was based on the mistaken
assumption that the
10.
Limited Collection Option from Exempt Assets in a Chapter 13. A
discharge of debt in bankruptcy relieves the debtor
of personal liability
for the debt. However, the debt may still be
collected from property encumbered by a
pre-bankruptcy tax lien. A lien filed prepetition, and
which is still valid, preserves the
government's right to proceed against exempt
property, even if the underlying tax liability is
discharged. See 11 U.S.C. § 522(c)(2)(B).
Note:
This collection method is rarely used in
a Chapter 13 bankruptcy case. If this situation
presents itself for serious consideration,
Insolvency must confer with Counsel for advice. See
25.17.13.10.2 (09-01-2004)
Hardship Discharge
1.
Hardship Discharge. The
debtor may request a hardship
discharge under
11 U.S.C. § 1328(b). Circumstances beyond the
debtor's control may prevent the debtor from
completing the plan, and rather than seeking a
dismissal of the bankruptcy, the debtor may apply
for a hardship discharge.
2.
Criteria.
Generally, when seeking a hardship discharge, the debtor must prove three
things to the court:
a.
the
circumstances leading up to the request for a
hardship discharge were beyond the debtor’s
control (for example, loss of a job);
b.
the value
of property actually distributed is at least what
would have been distributed in a Chapter 7
proceeding; and
c.
a
modification of the plan is not feasible.
3.
Notice and Hearing/Objection. The
debtor’s request for a hardship discharge requires
notice and hearing. The
4.
Chapter 7 Equivalency. A
hardship discharge is equivalent to the discharge
granted in a Chapter 7 proceeding.
Note:
Generally, under 11 U.S.C. § 1328(b),
in a hardship discharge, all priority taxes, unfiled
returns, fraudulent returns, and certain late-filed
returns are not
discharged.
25.17.13.10.3 (09-01-2004)
Revocation of Discharge Due to Fraud
1.
Time Limitation. If,
within one year
of the granting of the discharge, a
determination can be made the debtor obtained the
discharge through fraud,
the court, after notice and hearing, can
revoke the discharge. 11 U.S.C. §1330.
25.17.13.11 (09-01-2004)
Distribution of Funds
1.
Application of Payments. Generally,
all funds received from the trustee are posted to
AIS using the payment plan monitoring screen. Unless
designated differently by the court, payments are
applied to allowed claims, by category, as follows:
a.
secured claims – each secured period is
paid in full, then payment is applied to accrued
interest on that module before payments are applied
to the next oldest module;
b.
priority claims – only the tax and
interest are paid;
c.
unsecured claims – only the tax and
interest are paid;
d.
penalties on priority claims;
and, lastly,
e.
penalties on unsecured general claims .
2.
Non-Plan Payments. Occasionally
non-plan payments are received by the Service on a
bankruptcy case that are not
remitted through the Chapter 13 trustee. Insolvency
must document all particulars surrounding receipt of
such payments. If payments are retained, AIS should
be updated to indicate a payment received outside
the plan to reflect an accurate balance amount.
3.
Payment Screening. Insolvency should screen such a payment to
determine if the Service is entitled to apply the
payment as a credit to the debtor's federal tax
account.
A.
If Insolvency determines a payment should not be
credited, timely actions must be taken to dispose of
the funds appropriately.
B.
If a payment has been received and deposited by
the Service, and determination is made later the
payment should be returned, Insolvency will initiate
actions to generate a refund – either to the
Chapter 13 trustee or to the debtor, per local
procedures.
4.
Proper Screening/Allowance of Payments. Examples of payments that may be credited to the taxpayer's account and
generally allowed to be credited to the debtor's
account after proper
screening is done by Insolvency (e.g.,
research conducted, advice obtained from Counsel,
concurrence from trustee, if appropriate), are as
follows:
·
a voluntary
payment from the debtor or co-debtor
·
a payment
received from the sale of property
·
a payment
received from a lien discharge
·
a payment
from a non-petitioning spouse on a joint return
5.
Clarify Claim/Amend or Withdraw. If
such a payment is received, and the Service
determines it is entitled to retain the payment,
Insolvency will amend (or withdraw) the proof of
claim, as applicable. This is necessary for claim
clarification purposes.