Chapter 13 Case Procedures

Processing Case. Procedures relating to the processing of Chapter 13 cases by local Insolvency Groups can be found at IRM 5.9.10http://publish.no.irs.gov/getpdf.cgi?catnum=39967, Processing Chapter 13 Bankruptcy Cases.

Unfiled Returns. An objection to the confirmation of debtor’s plan and/or an order to compel the filing of a return should be filed where the debtor has failed to file return(s) for pre-petition year(s). For cases commenced on or after October 17, 2005, 11 U.S.C. § 1308(a) provides that before the 341 meeting, the debtor must file all returns due in the four years preceding the petition. The trustee may hold open the first meeting of creditors for a period of time to allow the debtor additional time to file any unfiled returns. The Service may object to confirmation, or seek dismissal or conversion of the case, if the debtor fails to comply with section 1308. 11 U.S.C. §§ 1307(e), 1325(a)(9).

Current Liabilities. A common cause of regular income earners’ tax liabilities is insufficient withholding of tax from wages, with the result that an unpaid amount for the most recent year becomes apparent eight or nine months after commencement of a Chapter 13 case. Field Counsel may wish to contact the debtor’s attorney regarding this matter. Note also for cases filed on or after October 17, 2005, Bankruptcy Code section 521(j) provides that if a debtor under any chapter fails to file a tax return that becomes due after the commencement of the case, or to properly obtain an extension, the Service may request that the court convert or dismiss the case and the court must do so unless the debtor files the return within 90 days of the request.

Satisfactory Payment of Taxes Under Regular Income Plans. Many of the plans submitted in Chapter 13 cases fail to provide for satisfactory payment of federal taxes required to be paid under Bankruptcy Code sections 1322(a)(2) (priority taxes), 1325(a)(4) (general unsecured taxes), and 1325(a)(5) (secured taxes).

If the proposed plan is unsatisfactory, Field Counsel should consider notifying the trustee or debtor’s attorney of the fact that the proposed plan fails to comply with the provisions of section 1322 or 1325.

This may be done by a letter calling attention to the necessity of complying with the provisions of section 1322 or 1325, and stating that the United States does not waive these requirements of the Bankruptcy Code insofar as federal taxes are involved.

If compliance is not obtained, Field Counsel should request the U.S. Attorney to file an objection to the confirmation of the plan under section 1324.

In exceptional cases, the Chapter 13 debtor may be unable to pay the Service’s claims as required under the Bankruptcy Code and it is in the taxpayer’s and the Government’s best interests not to have the case converted or dismissed. See IRM 5.9.10.5.5(4), Processing Chapter 13 Cases; The Chapter 13 Plan; Reasons to Object, Deficient Plans – Exceptions, and IRM 5.9.4.10, Common Bankruptcy Issues; Offers in Compromise and Bankruptcy. See CCDM 34.3.1.1.9, Procedures in Bankruptcy Cases; General Procedures in Bankruptcy Cases; Offers in Compromise in Bankruptcy, below.