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Part 5. Collecting Process

Chapter 9. Bankruptcy

Section 10. Processing Chapter 13 Bankruptcy Cases

5.9.10  Processing Chapter 13 Bankruptcy Cases

5.9.10.1  (03-01-2007)
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. Under the provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), for bankruptcies commencing on or after October 17, 2005, the plan length is determined by the relationship of the debtor's income to the median income in the state where the debtor filed the bankruptcy. (See 11 USC § 1322(d).) This chapter is not available to corporations or partnerships, but only to individuals (wage earners and sole proprietors).

  2. Chapter 13 Trustee Contact. 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. Generally Field Insolvency specialists or advisors make all direct contact with trustees. Limited contact between Centralized Insolvency Operation and the trustee may be necessary, usually to resolve payment posting issues.

  3. Trustee Duties. The Chapter 13 trustee:

    1. acts as an agent of the court;

    2. oversees the fair and economical administration of cases;

    3. ensures all creditors receive an equitable distribution;

    4. receives periodic payments from the debtor; and

    5. distributes periodic payments to creditors.

  4. Protection of the Government's Interests. Sometimes the interests of other creditors compete with the interests of the IRS. Because confirmation hearings take place early in Chapter 13 proceedings, Insolvency must address case issues at a pace sufficient to protect the government's interests.

5.9.10.2  (01-01-2006)
Chapter 13 Eligibility

  1. Criteria. 11 USC § 109(e) describes four tests the debtor must meet to file a Chapter 13 bankruptcy:

    1. 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;

    2. The debtor must have regular income (including income from self-employment);

    3. Secured debts must total less than $922,975; and

    4. Unsecured debts must total less than $307,675.

      Note:

      These limitations became effective April 1, 2004. The debt ceilings are for all debts, not just tax debts.

    BAPCPA established a fifth criterion under 11 USC § 109 for Chapter 13 bankruptcies filed on or after October 17, 2005. Debtors must undergo credit counseling within 180 days before the filing of the bankruptcy petition, unless specific exceptions are met. For those exceptions see 11 USC § 109(h).

  2. Eligibility/Automatic Adjustments. As required under 11 USC § 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 USC § 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 April 1, 2007.

5.9.10.3  (03-01-2007)
Initial Case Review for Chapter 13 Bankruptcy

  1. Time Requirement. Insolvency specialists must conduct an initial case review and take primary case actions within 10 work days of the case's being assigned to a specialist or advisor. Elements of this review may be required sooner, for example, to resolve stay violations or to respond to pending motions or defensive litigation. All actions taken and findings in the review must be documented in the AIS history.

  2. Pre-Bankruptcy Collection Actions. Activity in other Service functions may be pending or ongoing when the bankruptcy is filed (for example, a revenue officer may have outstanding levies). Coordination between Field Insolvency and the functions taking collection or examination actions helps the IRS comply with the provisions of the automatic stay.

    • The Service must protect taxpayers' rights by avoiding actions in violation of the automatic stay.

    • If a violation of the stay occurs, the IRS may be liable for damages and attorney’s fees, but not punitive damages.

  3. Levy Issues. In general, the Service should release all levies on an account immediately upon learning the taxpayer has filed bankruptcy and the automatic stay is in effect. (See 11 USC § 362(c)(3) and (4).) 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 specialists should contact Counsel on a case-by-case basis when serious levy issues arise. (See IRM 5.9.4.1.1,Levies and Bankruptcy.)

  4. Adequate Protection. Although used infrequently in a Chapter 13 bankruptcy, adequate protection may be considered in cases where levied funds are significant, or the debtor's property could be easily liquidated or moved. Alternately Insolvency may propose a request to lift the stay if a debtor’s ability to complete the plan is questionable. Insolvency must confer with local 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 IRM 5.9.8.3.5, Adequate Protection.

  5. Automatic Stay Review. Cases filed on or after October 17, 2005, should be reviewed for dismissals of previous bankruptcies within one year of the current bankruptcy. IRM 5.9.5.7,Serial Filers, explains how to conduct the review, and the proper actions to take depending upon the results of the review.

  6. Discharge Limitations. Chapter 13 cases filed on or after October 17 are subject to a waiting period between a previous bankruptcy discharge and the current petition date. Failure to adhere to the minimum time limitation will result in the debtor's liabilities being non-dischargeable. (See 11 USC § 1328(f).) IRM 5.9.5.7(9),Discharge Limitations, provides instructions for reviewing accounts for allowable elapsed time between bankruptcy filings.

    Note:

    The look-back periods for both the automatic stay review and the elapsed time review are not bound by the October 17, 2005, date. Example: If a Chapter 13 case is filed October 18, 2005, and that same debtor was discharged from a previous Chapter 7 case June 10, 2002, the debtor is not eligible for a discharge in the current Chapter 13 case.

  7. Lien Refile Determinations. The specialist assigned the Chapter 13 case must review IDRS for any periods where a Notice of Federal Tax Lien (NFTL) has been filed to determine if a lien refile is appropriate. IRM 5.9.5.8.2,Refiling of Liens, explains the window for refiling liens and provides guidance for determining if a lien should be refiled. A lien refile review is required for Chapter 13 accounts only during initial case reviews.

5.9.10.4  (03-01-2007)
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 IRM 5.9.8.11, Postpetition/Preconfirmation BMF Monitoring.)

  2. Unfiled Returns. Effective October 17, 2005, no later than the day before the 341 meeting is first scheduled, the debtor must file all tax returns "with the appropriate tax authorities" that are due under applicable non-bankruptcy law for taxable periods ending during the four year period prior to or on the date of the filing of the bankruptcy petition (11 USC § 1308(a)). After Insolvency has made a reasonable attempt to resolve the non-compliance administratively, if tax returns remain unfiled by the 341 meeting, the case should be referred to Counsel for conversion or dismissal. (See 11 USC § 1307(e).) IRM 5.9.4.17,Unfiled Prepetition Returns, explains the use of Letter 1714 and proofs of claims to alert the trustee to debtor non-compliance. Also see BAPCPA § 1228(b) which is an off-Code provision stating, "The court shall not confirm a plan of reorganization in the case of an individual under [Chapter 13] unless requested tax documents have been filed with the court."

  3. Delaying the 341 Meeting. For cases filed on or after October 17, 2005, the trustee may hold open the 341 meeting to provide the debtor an opportunity to file tax returns. For returns past due as of the petition date, such time may be no more than the later of:

    • 120 days after the date the first meeting is held; or

    • the return due date plus timely filed extensions.

    For returns that are not past due as of the petition date, delay of the 341 meeting cannot extend beyond the later of 120 days after the date of the first meeting or the date on which the return is due after a timely request for automatic extension under applicable non-bankruptcy law. After notice and a hearing and before the tolling period for filing the return(s) terminates, the bankruptcy court may extend the trustee’s filing period, but the extension may not exceed 30 days for delinquent returns or the extended due date for returns that are not yet due.

    Note:

    Bankruptcy Rule 3015(f) states that upon receiving delinquent returns, the Service has an additional 60 days to object to plan confirmation.

5.9.10.5  (01-01-2006)
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)). Effective October 17, 2005, 11 USC § 1326(a)(1) requires plan payments to begin within 30 days after the date of the filing of the plan or the order for relief, whichever is earlier, unless the court orders otherwise.

  2. Basic Plan Requirements. In general, the plan should specify:

    1. what each creditor will be paid over the term of the bankruptcy;

    2. the rate of interest, if applicable, as set forth in IRC § 6621; and

    3. other conditions that affect the treatment of each creditor.

    For cases filed prior to October 17, 2005, if all plan requirements are met, the court must grant the debtor a superdischarge of all debts provided for in the plan at the end of the Chapter 13 proceeding. Certain taxes on cases filed on or after October 17, 2005, are excepted from discharge. (See IRM 5.9.17.7(4),BAPCPA Exceptions to Discharge.) If a debtor fails to complete the plan payments, the court may still grant a "hardship" discharge. All three discharge scenarios are discussed in more detail in IRM 5.9.10.11.

5.9.10.5.1  (01-01-2006)
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. The plans on cases where the IRS is listed as a creditor are mailed to the Centralized Insolvency Operation's post office box. The CIO clerical units will forward the plans to the appropriate Field Insolvency office by overnight courier unless the bankruptcy confirmation date is within ten calendar days of receipt. In that case the plan will be faxed to the Field office. (See IRM 5.9.11.3.2, Time Sensitive Mail.)

    Note:

    An objection can be filed if a creditor receives less than 25 days notice.

  2. Confirmation Hearing. BAPCPA provides the confirmation hearing for Chapter 13 cases filed on or after October 17, 2005, may not be held earlier than 20 days and no later than 45 days after the 341 meeting, unless it is in the best interests of both the creditors and the estate and no objection is filed. (See 11 USC § 1324(b).)

5.9.10.5.2  (03-01-2007)
Plan Requirements

  1. Necessary Plan Provisions. An adequate Chapter 13 plan will:

    1. provide the trustee all, or a portion, of the debtor’s future earnings for the repayment of debts;

    2. provide for full payment of all priority claims under 11 USC § 507, unless the creditor agrees to a different treatment; and

    3. provide all claims in the same class receive equal treatment.

  2. BAPCPA Amendments. In addition to the requirements of an adequate plan listed in paragraph (1) above, for cases filed on or after October 17, 2005, BAPCPA has added two provisions to 11 USC § 1322 that may affect the Service.

    1. Payment of Interest. The debtor may provide for payment of interest on unsecured claims that are nondischargeable under 11 USC § 1328(a) if the debtor has disposable income sufficient to pay interest after making provision for full payment of all allowed claims.

    2. Length of Plan. The allowable length of a plan is determined by comparing the debtor's current monthly household income (times 12) to the annual median income of the debtor's state. (See 11 USC § 1322(d).) Extensions of plan length can be granted by the court, but the court may not approve a period longer than five years.

  3. Additional Provisions. 11 USC § 1322(b) sets forth permissive actions that may be incorporated in the plan, including:

    1. 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

    2. making provisions for certain postpetition claims.

    Caution:

    Vague or ambiguous language in plans should be flagged for possible objections. Counsel's input should be sought if necessary.

  4. Plan Confirmation Conditions. 11 USC § 1325 gives conditions under which the court may confirm a plan. The court generally confirms a plan if:

    1. all provisions contained in the Bankruptcy Code are met and all fees are paid;

    2. the plan is proposed in good faith;

    3. unsecured creditors will receive at least the amount to which they would be entitled in a Chapter 7 bankruptcy;

    4. secured creditors will receive their collateral or the amount of their claim with interest, if paid in installments;

      Note:

      11 USC § 1325(a)(5)(B)(i) provides the lien is retained until the earlier of the time the underlying debt is paid or the time a discharge is granted. It also provides a lien is retained if the case is dismissed or converted without completion of the plan.

    5. schedules indicate the debtor can make all plan payments; and

    6. the debtor has filed all applicable Federal, State, and local tax returns as required by 11 USC § 1308.

5.9.10.5.3  (03-01-2007)
Plan Review

  1. Timely Review of Plan. Field Insolvency specialists have sole responsibility for reviewing Chapter 13 plans and plan amendments. Absent extenuating circumstances, specialists must review plans prior to the deadline for objection to confirmation. This ensures if an objection is necessary, the referral will be made in time for the Service to be represented in bankruptcy court. If a copy of the plan or plan summary is not received from the court in ample time for Insolvency review, the specialist must access the plan on the court's electronic site or contact the court or debtor's attorney to have a copy sent directly to the Field Insolvency office address.

  2. Pre-BAPCPA Reviews. For cases filed prior to October 17, 2005, once a plan is confirmed, the provisions of the confirmed plan bind the IRS as a creditor, whether or not the plan provides for payment of the government’s proof of claim.

    Example:

    If Insolvency failed to file an estimated claim for unfiled prepetition years and the plan provides for those years in any way, the Service is required to close those years with TC 599 cc67 ("Unassessable, (Bankruptcy)" ) even though no returns were filed and no money was recovered from the bankruptcy estate.

  3. Post-BAPCPA Reviews. The implementation of BAPCPA provisions for cases filed on or after October 17, 2005, does not lessen the need for thorough review of Chapter 13 plans. However, BAPCPA has codified some plan requirements and exceptions to discharge that protect creditors and reduce the Service's need to request motions to object to confirmation:

    1. Payments must be monthly in equal amounts.

    2. If a case is dismissed or converted before completion of a plan, the Service retains its liens (if any) to the extent recognized by nonbankruptcy law.

    3. Liabilities on unfiled returns or late returns filed within two years of the petition date are non-dischargeable.

      Note:

      TC 599 cc67 will not be placed on TDI modules for Chapter 13 bankruptcies filed on or after October 17, 2005. Insolvency should establish local procedures with Counsel's guidance for the best way to notify the court of a debtor's failure to file returns for periods for which a return is due.

  4. Pre-Confirmation Trustee Plan Review. The Chapter 13 trustee must review plans and claims 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 shortly after the § 341 meeting of creditors. IRM 5.9.10.5.4, Objecting to a Plan, and 5.9.10.5.5, Reasons to Object, provide information concerning plan objections and have been updated to reflect BAPCPA changes.

  5. Service Goals. Insolvency management should develop local procedures which:

    1. emphasize in depth review of all plans with large tax liabilities and/or unusual or significant case issues;

    2. minimize inappropriate treatment of IRS tax claims;

    3. are coordinated with Counsel; and

    4. 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.

  6. " Provides for" – Plan Provision Problem. Frequently, Chapter 13 plans include a provision stating all priority debts under 11 USC § 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 USC § 1328(a), even if the plan does not actually provide for any payments on the tax debt.

  7. Timely Claims. The Service should file a claim prior to the general 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:

    For cases filed on or after October 17, 2005, trust fund taxes are excepted from discharge even if the Service files an untimely claim or does not file any claim. (11 USC § 1328(a)(2)). Therefore, it is in the Service's best interest to file an untimely claim, as the debtor may modify the plan to provide for the liability.

  8. Unacceptable Plan. If the plan does not provide for appropriate payment of the Service's claims, the Insolvency specialist should follow the guidance in IRM 5.9.10.5.4 below.

5.9.10.5.4  (01-01-2006)
Objecting to a Plan

  1. Objection/Negotiations. When a bankruptcy specialist judges a plan to be inadequate, an objection must be considered. The objection may be raised by:

    1. Insolvency's negotiating acceptable terms with the debtor’s attorney prior to confirmation to avoid potential litigation;

    2. objecting to the plan at the 11 USC § 341 meeting; or

    3. making a referral to Associate Area Counsel, requesting a formal objection be made to the plan.

  2. Referral System. Field Insolvency and Counsel should work together to coordinate an efficient system for routing referrals, allowing for adequate control and timely actions through use of the AIS "referral" screen. All referrals must include the debtor's TIN(s). All referrals to Counsel must be documented on the AIS referral screen.

    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, the Field bankruptcy specialist should:

    1. refer to the local bankruptcy court rules controlling the case for timeframes to object;

    2. make prompt contact with the debtor's attorney to attempt informal resolution; and

    3. if appropriate, consult with Counsel on the proper method for a formal objection.

  4. Objection to Plan Factors. Besides LEM criteria, special circumstances and local guidelines may be established to control the number of plan objections.

  5. Timely Objections. Once a specialist has decided to refer an objection to confirmation to Area Counsel, the referral must be made timely to give Counsel adequate notice to prepare a quality objection to the plan. Associate Area Counsel can advise local offices of the number of days in advance Counsel needs to receive a referral to prepare an adequate objection.

  6. Outreach Efforts. Outreach to Insolvency stakeholders should be an integral part of the local Insolvency program. Personal interactions with trustees and bar association members can foster cooperation of all parties and address issues of mutual concern.

5.9.10.5.5  (01-01-2006)
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 USC § 1325. However, the trustee might not object to a plan that adversely affects an IRS claim. The IRS should object to a plan when appropriate to protect the government's interests while tax accounts are under the jurisdiction of the bankruptcy court. ( See IRM 5.9.10.7, After Confirmation.)

  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.

    1. The total of the debtor's secured or unsecured debt exceeds the limitation for secured or unsecured debt in a Chapter 13 bankruptcy.

    2. The entity's name on the petition is the name of a partnership , which research confirms; but a partnership is not eligible to file Chapter 13.

    3. 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. Additionally the Service may object to confirmation because the plan:

    1. fails to meet the requirements of 11 USC §§ 1322 and 1325 (for example, priority and secured claims will not be paid in full);

    2. is not feasible given the debtor's current income, expenses, and future tax obligations;

    3. proposes a balloon payment;

    4. discriminates against the IRS by treating the Service's claims differently than other creditors in the same classification;

    5. proposes payments outside of the plan;

    6. proposes to abandon collateral to the government or proposes to distribute property in lieu of cash;

    7. is to be modified by the debtor after confirmation if such a modification could impair the government’s claim; or

    8. 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 USC § 1325(b), to fund the plan.

  4. Deficient Plans - Exceptions. In exceptional cases the Chapter 13 debtor may be unable to pay the IRS'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.

    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 IRS's priority, the best interests of the government and of the debtor may be to agree to partial payment of the priority tax claims under the plan of reorganization and specifically exempting such claims from discharge under the terms of the plan. When the bankruptcy is closed after completion of the plan, the taxpayer may submit an administrative OIC for the remaining tax liabilities.

  5. Unacceptable Deficient Plans. Under no circumstances will the IRS accept less than would be recoverable in a Chapter 7 case. Nor will the IRS consider a plan providing payment of less than is statutorily required unless the following is true:

    • The plan does not provide for the payment of claims with lower priority than those of the IRS

    • 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. Factors for Evaluating Deficient Plans. The following considerations should be weighed before deciding to agree to treatment of the IRS's claims that does not meet the requirements of the Bankruptcy Code:

    • Debtor's ability to pay the IRS's claim as required by the Bankruptcy code

    • Debtor's compliance with filing requirements

    • Probability the plan will pay the IRS more than if the case is dismissed or converted to a Chapter 7 liquidation

    • 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 IRS is the only creditor in the case.

    • 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:

    1. the Service has affirmatively agreed to treatment of its claim that differs from the treatment required under the Bankruptcy Code;

    2. the debtor will comply with all filing requirements and withholding and estimated tax payment requirements during the life of the plan; and

    3. 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 IRS's claims irrespective of Bankruptcy Code requirements.

  8. Burden Falls to the Debtor. Unless the Chapter 13 debtor timely provides information to Insolvency demonstrating the inability to pay the IRS's claim as required by the Bankruptcy Code and conversion or dismissal of the case is not in the best interest of the government, the case should be referred to Counsel to file an objection to the plan.

  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 following:

    • 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 non-dischargeable and full collection is likely outside of bankruptcy.

5.9.10.6  (01-01-2006)
Field Insolvency AIS Actions

  1. Confirmation Date. The date to be input by all Field Insolvency offices on the AIS entity screen for the confirmation date field is the actual date the plan is confirmed. Projected dates are not to be input with the exception cited in paragraph (2) below. At confirmation and before transfer of a case to CIO, the Field specialist must verify the plan and prepare any adjustment requests (see IRM 5.9.5.9,Adjusting Bankruptcy Accounts) resulting from confirmation actions and follow-up for adjustment posting before case transfer.

  2. Loading Payment Plans. Trustees in some jurisdictions send payments to the Service before a plan has been confirmed. To permit these payments to be posted through AIS, Field offices that receive preconfirmation payments from the trustee must load the Payment Plan Monitoring screen for each case when a proof of claim is filed. An estimated confirmation date may be used on the AIS entity screen. However this estimated date should be replaced by the actual confirmation date before the case is transferred to CIO. The plan payment amount for the dummy plan must be $1.00, and a payment amount of $2.00 or more must be loaded as the plan payment amount upon confirmation. (A plan payment of amount of $1.00 will act as the alert that the plan has not yet been confirmed.)

    Note:

    Prior to transferring any Chapter 13 case to CIO, the AIS Payment Plan Monitoring screen must be loaded for all cases for which a POC has been filed.

  3. Amended Claims and Plans. Field Insolvency caseworkers must update the Payment Plan Monitoring screen when an amended claim is filed and allowed by the court.

  4. History Summaries. Before a case is transferred to the Centralized Insolvency site, a Field Insolvency specialist must summarize the case history on AIS. If specific information is lengthy, the summary can reference previous history entries by date. The summary should be identified by *****SUMMARY***** in upper case letters. Sample minimum summaries are as follows:

    • Unfiled returns, including MFTs and periods (e.g., "Unfiled 30 2003" )

    • Prior installment agreement information, including agreement type, amount and day of month (e.g., "Prior IA: direct debit @ $150, 25th ea. mo." )

    • Refund turnover orders (e.g., "Refund turnover order, trustee John Doe" or "Refund order, see history 4/02/04" )

    • Pending exam or reassessment (e.g., "Exam on 2003" or "Reassessment of TC 300 for 2002 at close of bk" )

    • Non-petitioning spouse information (e.g., "NPS - Jane Smith SSN XXX-XX-1234 for 2001" )

    • Unusual plan provisions (e.g., "Plan does not provide for secured periods. Do not discharge 30 1999." )

5.9.10.7  (01-01-2006)
After Confirmation

  1. Property of the Estate. 11 USC § 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 claim or interest provided for in the plan.

  2. Terms Binding. The IRS is bound by the terms of a confirmed plan even if it provides for less than full payment of the Service's claims. But the terms of a confirmed plan cannot conflict with the creditor's rights under the bankruptcy code, (e.g., allowing discharge of taxes resulting from a fraudulent return).

    Reminder:

    Objecting to a plan before confirmation is critical when an objection is appropriate.

  3. Modifications. The IRS may be able to move for modification of the plan to obtain an increase in payment of its unsecured general claims when the debtor’s disposable income has increased.

5.9.10.7.1  (03-01-2007)
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.

    1. For cases filed prior to October 17, 2005, 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.

      Note:

      The length of the plan period for cases field on or after October 17, 2005, is tied to the debtor's income in relation to the median income of the state in which the debtor resides. (See 11 USC § 1322(d).)

    2. 11 USC § 1329(a) provides the debtor, the trustee, or an unsecured creditor may request modification of a confirmed plan.

    3. Insolvency should scrutinize a plan modification as carefully as an original plan.

    4. If modification is not acceptable to the Service and LEM 5.9.4 criteria for referral to Counsel are met, a timely objection to the modified plan should be raised. Field 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 IRM 5.9.10.9, Postpetition Tax Liabilities. See IRM 5.9.10.9.2, Section 1305 Claims.)

5.9.10.7.2  (01-01-2006)
Impact of the Automatic Stay

  1. Duration of the Automatic Stay. For cases filed prior to October 17, 2005, the automatic stay is not lifted 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 IRM 5.9.10.8, Monitoring the Chapter 13 Plan, and See IRM 5.9.10.9, Postpetition Tax Liabilities.) However, cases filed on or after October 17, 2005, may be subject to termination of the stay 30 days after the petition date or the non-imposition of a stay. (See IRM 5.9.3.4(2),Individual Serial Filers and BAPCPA and IRM 5.9.5.7,Serial Filers.)

    Note:

    The stay may be lifted to grant a creditor temporary relief from the stay regardless of the petition date.

  2. Domestic Support Obligations. For bankruptcies commencing on or after October 17, 2005, 11 USC § 362(b)(2)(F) excepts from the automatic stay the interception of tax refunds to pay any past due domestic support obligations. (See IRM 5.9.4.4.3.1(3), BPI 07.)

  3. 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.

  4. 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.

  5. 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 IRM 5.9.4.2(5)(e),CSED Indicators.) 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.

  6. CSED Issues and Considerations. Periodic CSED monitoring of the non-debtor spouse must be conducted by Insolvency.

    1. Insolvency may issue an "Other Investigation " (OI) to a field revenue officer group to determine collection potential from the non-debtor spouse or to protect the CSED if the collection statute is a concern.

    2. The delinquent account could be addressed in the debtor's plan.

    3. The non-debtor spouse may continue with a previously-approved payment agreement with the Service (if applicable).

    4. 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 or send a credit letter to the trustee to update the claim amount(s) for the court.

    Note:

    If a CSED for a non-petitioning spouse is imminent or has passed, management must be informed.

  7. Decision to Retain 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:

    1. determine who submitted the payment (the debtor or the non-debtor spouse);

    2. try to determine the designation or intent of the payment to decide if IRS has a right to retain the funds (for example, the funds may be from the non-debtor, who wants to continue with a prepetition installment agreement);

    3. take precautionary measures so the debtor's rights are not violated; and

    4. consult Counsel when legal advice is required.

  8. Revenue Officer Contact with Insolvency. Revenue officers may not take any collection action after a taxpayer has filed Chapter 13 unless such action is cleared with Insolvency. Employees in field Collection 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.

    Caution:

    On cases where the automatic stay is in effect, collection must be stayed on any prepetition tax debt. Every effort must be made to prevent enforcement actions against the debtor (e.g., notice, lien, levy) while the debtor is under the pr