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Ch. 13 w/ IRS in the plan

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What is the name of your state? Texas

My husband has been paying on a Ch 13. He had the BK before we ever met. About one-quarter of the debt on his plan was owed to the IRS. Of course, the BK isn't mine, but I'd always be responsible for IRS debts if something were to happen to my husband.

Sooooo...... He now has about 5 months left to pay on the plan, which was a 5-year one.

We noted that the Trustee never has directly paid the IRS anything, even though they were listed as a "priority claim." Car and a motorcycle were paid off first.

Since getting married, we have had tax refunds for 2000, 2001 (a rather large one), and for 2002. Of course, the IRS took all of these refunds as satisfaction of the debt.

Looks like the BK would have been shortened because of these IRS refunds, but not so. BK's still scheduled for 60 months. My thinking is that other creditors might be paid more than they were expecting, which isn't a bad scenario.

Can anyone answer these questions?

(1) Why wasn't the IRS paid early on? Does a trustee just expect that folks will get tax refunds and that will help satisfy the debt?

(2) What is the likelihood that my husband will get a check for over-payment after the BK is discharged?


If the IRS didn't file and have granted a lift of stay, the offsets were very likely violations of stay.

From: Burton Haynes, Esq. site


"A typical computerized action violating the automatic stay is the Service's practice of offsetting a current period refund against a prior period delinquency. Even though the Internal Revenue Manual acknowledges that the automatic stay bars refund offsets unless and until a lift stay order is obtained from the Bankruptcy Court, it is not uncommon to find that the IRS has offset a postpetition refund against a prepetition tax debt. In an effort to convince the IRS to be more punctilious about such matters, the new IRS Restructuring and Reform Act allows damages of up to $1,000,000 for violations of the automatic stay."

If the tax debt was listed as a priority claim, it should have been paid before other non-priority claims, secured debts included. To be paid, the IRS had to file a proof of claim just like any other creditor.

What doesn't sound right is that the Trustee's annual or semi-annual report to your husband would have excluded debts that had no POC's filed and approved. If you're seeing that on his report, chances are the IRS did file a POC and it was approved as a priority claim.

Anyway, unless his case is 100% to unsecured, amounts paid over the confirmed % to unsecured will be dished out to unsecured creditors. You should request a Trustee's audit of your case to make sure there won't be surprises surfacing at month 59.

Check with your attorney to see if there's a way to have the plan overage (if any) returned to you. What have you got to loose? You can also ask about suing the IRS for violation of stay, although I wouldn't necessarily recommend taking action. However, if damage awards can be in the range mentioned above, it may be worth the future hell they're likely to put you through.

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