5.17.11  Chapter 13 Bankruptcy (Individuals with Regular Income) and Chapter 12 Bankruptcy (Family Farmers or Fishermen with Regular Income)  (10-01-2010)

  1. This section primarily concerns Chapter 13 bankruptcies. It explains the provisions and concepts of bankruptcy law that are unique to Chapter 13. It also briefly discusses Chapter 12 bankruptcies.

  2. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) significantly revised the Bankruptcy Code. These changes generally apply to bankruptcies filed on or after October 17, 2005.

  3. Exhibit 5.17.8-1 contains a glossary of the bankruptcy terms used in this section.  (10-01-2010)
Purpose of Chapter 13 Cases

  1. Chapter 13 provides a procedure for an eligible individual with regular income to pay all or a portion of his or her debts through plan payments over an extended period. Only those portions of regular income that are not necessary to pay living expenses are used to pay claims.

  2. Before the effective date of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), a debtor received a superdischarge if he or she completed all payments required under the plan. Any tax debts provided for under the plan would be discharged. BAPCPA modified this discharge so that certain tax debts excepted from discharge under 11 USC § 523 are no longer discharged. For example, trust fund recovery penalties are no longer discharged and must be paid in full.

  3. After filing the Chapter 13 petition, the debtor files a Chapter 13 plan which proposes to pay creditors, including the IRS, over a period of up to five years, typically in monthly installments.  (10-01-2010)
Who May Be a Chapter 13 Debtor

  1. Chapter 13 is for individual debtors. 11 USC § 109(e).

    1. It is not available to corporations, partnerships, or other business entities.

    2. An individual owning a business as a sole proprietorship may file as an individual, and the schedules may include business debts of the individual.

    3. Chapter 13 cases are commonly known as wage-earner cases, but the Bankruptcy Code does not require that the individual be a wage earner as long as the individual has regular income with which to fund the plan.

    4. An "individual with regular income" is defined in 11 USC § 101(30) as an individual whose income is sufficiently stable and regular to enable such individual to make payments under a Chapter 13 plan. A stockbroker or commodity broker is excluded from filing bankruptcy under this chapter.

  2. To be a Chapter 13 debtor, the individual must have a regular source of income, and total outstanding liabilities at the time of the petition cannot exceed certain dollar limits.

    1. For cases commenced on or after April 1, 2010, the dollar limits were increased to $360,475 for unsecured debts and $1,081,400 for secured debts. 11 USC § 109(e).

    2. These dollar limits are increased every three years based upon the Consumer Price Index.

    3. The debts must be noncontingent and liquidated.

  3. Liabilities set forth in a statutory notice of deficiency are noncontingent, liquidated debts even if contested in Tax Court at the time the bankruptcy petition is filed. United States v. Verdunn, 89 F.3d 799 (11th Cir. 1996); In re Brooks, 216 B.R. 838 (Bankr. N.D. Okla. 1998). A debt is noncontingent when all of the events giving rise to liability for the debt occurred prior to the debtor's filing for bankruptcy. See, e.g., In re Knight, 55 F.3d 231, 236 (7th Cir. 1995); In re Nicholes, 184 B.R. 82, 88 (9th Cir. BAP 1995).


    As long as the liabilities can be calculated through mathematical computations, a debt may be liquidated without issuance of a notice of deficiency. See Hounsom v. United States, 325 B.R. 319 (M.D. Fla. 2005).  (10-01-2010)
Initiating a Chapter 13 Case

  1. A Chapter 13 case must be voluntary. Procedures for filing a Chapter 13 are otherwise essentially the same as in Chapter 7 cases. A Chapter 13 debtor is required to file schedules of assets and liabilities, a schedule of current income and expenditures, a schedule of executory contracts, and a statement of financial affairs. Bankr. Rule 1007.

  2. A first meeting of creditors (11 USC § 341) is held as in a Chapter 7 case. The business of the meeting includes the examination of the debtor concerning the debtor’s statement of financial affairs and the feasibility of the debtor’s plan. Under BAPCPA, before the first meeting of creditors, the debtor is required to file tax returns for the four-year period ending before the petition date and provide to the trustee a copy of the return for the tax year ending immediately before the petition date. 11 USC §§ 521(e)(2), 1308(a); In re Perry, 389 B.R. 62 (Bankr. N.D. Ohio 2008).

    1. Unlike Chapters 7 and 11, Chapter 13 makes no provision for creditors' committees.

    2. Appointment of a trustee in a Chapter 13 does not displace a business debtor from management, unlike Chapter 11.  (10-01-2010)
The Trustee

  1. There is a trustee in every Chapter 13 case. The trustee is almost always a standing trustee who is appointed by the United States Trustee. 11 USC § 1302.

    1. The Chapter 13 trustee’s duties include many of those of the Chapter 7 trustee, such as being accountable for all property received, investigating the financial affairs of the debtor, opposing the discharge if advisable, and making a final report and accounting.

    2. Under BAPCPA, the trustee must ensure payment of the debtor’s domestic support obligations.

    3. The trustee is to appear and be heard at hearings concerning the valuation of property subject to a lien, confirmation of a plan, or modification of the plan after confirmation.

    4. The trustee must also ensure that the debtor commences making timely plan payments.

  2. If the debtor is engaged in business, the trustee has some of the duties of a Chapter 11 trustee under 11 USC § 1106(a)(3) and (4), including investigating the financial condition of the debtor and the desirability of continuing the business, and filing a statement regarding such investigation.  (10-01-2010)
Rights and Duties of the Debtor

  1. The debtor has the exclusive right to seek court approval for the use, sale, or lease of property outside the ordinary course of business. These rights are essentially the same as those given to a Chapter 7 trustee. 11 USC § 1303.

  2. Unless the court orders otherwise, a debtor engaged in business is authorized to operate the business. 11 USC § 1304.

    1. In this capacity the debtor is subject to the same rights, powers, and limitations of a debtor in possession (or trustee) in a Chapter 11 case with respect to the use, sale or lease of property and the obtaining of credit.

    2. A debtor engaged in business must also perform the duties of a Chapter 7 trustee under 11 USC § 704(8), including filing with the court and the United States Trustee periodic reports and summaries concerning the operation of the business. 11 USC § 1304(c).

  3. Unlike individual Chapter 7 and Chapter 11 estates, a Chapter 13 estate is not a separate taxable entity. IRC § 1399. The debtor is therefore responsible for filing tax returns for all postpetition income.


    Under 11 USC § 521(j), added by BAPCPA, the IRS may request that the court convert or dismiss the case if the debtor fails to file postpetition returns. The IRS need not be a party in interest to make this request.  (10-01-2010)
Proofs of Claim

  1. To receive payment, a proof of claim must be timely filed. The procedures for filing a claim are set forth in Bankruptcy Rules 3001 and 3002.

  2. The time for filing a proof of claim for nongovernmental creditors in a Chapter 13 case is 90 days after the date first set for the first meeting of creditors. However, under 11 USC § 502(b)(9) as amended by BAPCPA, a governmental unit also has 180 days after the date of the bankruptcy petition to file a claim and has 60 days after a required return is filed to file a claim for a tax to which the return relates. A claim filed within any of these periods is timely. A governmental unit may seek to have these time frames extended by filing a motion for extension prior to the expiration of the initial time period. Bankr. Rule 3002(c)(1).  (10-01-2010)
Automatic Stay

  1. A Chapter 13 debtor is protected by the automatic stay provisions found in 11 USC § 362.

  2. The stay operates until the Chapter 13 case is dismissed or closed, or a discharge is granted or denied. 11 USC § 362(c)(2). Because the discharge is not granted until all payments have been made under the plan, the stay remains in effect throughout the entire period of the plan.


    The IRS may request relief from the automatic stay in certain circumstances (e.g., lack of adequate protection). 11 USC § 362(d). Consult Area Counsel to determine whether seeking relief from the stay is appropriate.

  3. Under BAPCPA, if the debtor had one or more bankruptcies pending within a year before the current bankruptcy, the stay may terminate early or may never go into effect. The stay may terminate 30 days after the petition date where one prior bankruptcy was filed, and it may never go into effect where there were two or more prior bankruptcies. The debtor may be able to proceed to confirmation even if the automatic stay is deemed to not be in effect. Consult Area Counsel for advice on how to determine the duration of the automatic stay in these situations.

  4. The duration of the automatic stay affects the running of the collection statute of limitations and how long it is suspended under IRC § 6503(h). Serial bankruptcy cases make it difficult to calculate the statute of limitations. Consult with Area Counsel to make these calculations.

  5. Additionally, creditors are stayed from collecting from co-debtors on consumer debts. 11 USC § 1301. Consumer debt is defined in 11 USC § 101(8) as debt incurred primarily for a personal family or household purpose. Tax liabilities are not included in the definition.  (10-01-2010)
Adequate Protection and Turnover

  1. Lack of adequate protection can be a basis for the IRS to resist turning over property of the estate to the trustee. See In re Hooper, 152 B.R. 309 (Bankr. D. Colo. 1993). Adequate protection typically means periodic cash payments. In a Chapter 13, the debtor is required to initiate payments within 30 days of the filing of the plan. 11 USC § 1326(a). Confirmation is achieved fairly quickly in most Chapter 13 cases, binding the Government to the terms of the confirmed plan. Thus, adequate protection has been determined by some courts to be provided by the periodic payments required by the confirmed plan. United States v. Reynolds, 764 F.2d 1004 (4th Cir. 1985); United States v. Norton, 717 F.2d 767 (3d Cir. 1983).  (10-01-2010)

  1. Under BAPCPA, the automatic stay does not prohibit the IRS from setting off prepetition income tax refunds against prepetition income tax liabilities. 11 USC § 362(b)(26). Where the automatic stay prohibits other types of setoffs, the IRS can temporarily retain a refund to preserve its setoff rights. In those cases, the IRS should seek relief from the stay before permanently offsetting refunds. See Citizens Bank v. Strumpf, 516 U.S. 16 (1995). After confirmation of the Chapter 13 plan, and where the plan fully provides for the IRS claims, retaining the refund indefinitely may be considered a violation of the automatic stay.

  2. The IRS may set off postpetition overpayments against postpetition liabilities unless the IRS filed a claim under 11 USC § 1305 for these liabilities. Section 1305 allows creditors to file claims for debts that become payable after the petition date, and these claims may be provided for in the plan.

  3. Local bankruptcy court rules and orders may provide specific procedures regarding the offset of refunds. Consult Area Counsel for local rules.  (10-01-2010)
The Chapter 13 Plan

  1. The debtor has the exclusive responsibility for filing a plan. 11 USC § 1321. Although most plans are filed at the time of the petition, the debtor has up to 15 days from the filing of the petition to file the plan unless the court, for cause, allows otherwise. Bankr. Rule 3015(b). The plan specifies what each creditor will be paid and under what terms.

  2. Unlike Chapter 11 creditors, Chapter 13 creditors do not vote on the plan. A creditor should object to confirmation if the plan does not properly treat its claim.

  3. Section 1322(a) requires a plan to provide for:

    1. submission of all or such portion of future earnings or other future income to the trustee as is necessary to fund the plan;

    2. the full payment, on a deferred basis, of priority claims (including priority taxes under 11 USC § 507) unless the holder of the claim agrees to different treatment;


      Under 11 USC § 1322(a)(4), added by BAPCPA, if the plan provides for less than full payment of a domestic support claim entitled to priority status, all the debtor’s disposable income for a five-year period must be applied to plan payments.

    3. the same treatment for each claim within a class; and

    4. the payment of interest on claims for nondischargeable unsecured debts, assuming that the debtor has disposable income remaining after paying all allowed claims in full.

  4. Prior to BAPCPA, the plan could not be longer than three years unless the court, for cause, approved a longer payment period, not to exceed five years. Under BAPCPA, the allowable plan length is tied to the debtor’s income, but the plan cannot exceed five years under any circumstances. 11 USC § 1322(d).

  5. A court must confirm a plan if the holder of each allowed secured claim has accepted the plan; if the plan provides that the claimholder retains its lien and receives the full amount allowed on such claim; or if the debtor surrenders the property securing such claim to the claimholder. 11 USC § 1325(a)(5).

    1. Under BAPCPA, if a secured creditor is to receive periodic payments, the payments must be in equal monthly amounts, and the amount of the payments must provide an amount sufficient to constitute adequate protection if the claim is secured by personal property.

    2. Under BAPCPA, a secured creditor may retain its lien until the debtor pays the underlying debt or the court grants a discharge, whichever is earlier. If the case is dismissed or converted prior to completion of the plan, a secured creditor retains its lien to the extent allowed by nonbankruptcy law.


      The value of a secured claim does not include the value of property excluded from the bankruptcy estate. A lien on excluded property passes through bankruptcy unaffected and remains enforceable against this property after the discharge is granted. Excluded property is a property interest that never becomes property of the bankruptcy estate. ERISA-qualified pension plans and other plans listed under 11 USC § 541 are examples.

  6. The IRS should object to confirmation if its secured claim is not properly treated under the plan. A confirmed plan is binding on a secured creditor who does not timely object to the plan even if the plan does not comply with 11 USC § 1325(a)(5). In re Szostek, 886 F.2d 1405 (3d Cir. 1989); IRS v. DiPasquale, 2006 WL 1207990, 97 AFTR2d 2006-2233, 2006-1 USTC ¶ 50,318 (D.N.J. 2006).

  7. The debtor may deal with a secured claim outside the plan. If the secured claim is held by the IRS and the debtor does not pay its liability, the IRS should ask the court to lift the stay.

  8. A plan should not be confirmed unless priority claims are provided for in full, and the IRS should object to a plan that does not provide for full payment of priority taxes. In the event that the IRS does not object and a plan is confirmed without properly providing for priority taxes, the IRS, prior to discharge, can move to have the plan dismissed or modified. This has been successful in some courts. In re Escobedo, 28 F.3d 34 (7th Cir. 1994); In re Puckett, 193 B.R. 842 (Bankr. N.D. Ill. 1996). After discharge, the IRS’s options are more limited.

  9. Under the "best interests of creditors" test, unsecured general claims must receive under the plan at least the amount they would be entitled to in a Chapter 7 case. 11 USC § 1325(a)(4). To decide whether the plan meets this requirement, the court must determine the value of nonexempt assets and make a hypothetical Chapter 7 distribution. If a claim would be fully paid in a Chapter 7 case, the creditor is entitled to receive interest on its claim until it is fully paid in the Chapter 13 case.

  10. If a plan provides for less than full payment of unsecured general claims, the court may not approve the plan over the trustee's or a creditor’s objection unless the debtor commits all the debtor’s projected disposable income to plan payments. 11 USC § 1325(b)(1)(B).


    The court shall confirm a plan if the plan has been proposed in good faith and not by any means forbidden by law. 11 USC 1325(a)(3). In general, the good faith test requires consideration of the totality of the circumstances. See, e.g., In re Alt, 305 F.3d 413 (6th Cir. 2002) (providing a list of possible circumstances courts should consider). For example, a plan may not meet the good faith test if the debtor fails to pay all disposable income into the plan or if the plan provides a minimal payout in relation to large unsecured debts. Consult Area Counsel to determine whether a plan has not been proposed in good faith.

  11. If the debtor fails to file the federal tax returns required by 11 USC § 1308 (returns for the four-year period ending on the petition date), the court shall dismiss or convert a case on request of a party in interest or the United States Trustee and after notice and a hearing. 11 USC § 1307(e). The court will decide whether to dismiss or convert the case based upon the best interests of the creditors and the estate. Or the court may extend the filing deadline for a limited time if the debtor demonstrates by a preponderance of the evidence that the failure to file a return as required is attributable to circumstances beyond the debtor’s control. 11 USC § 1308(b)(2). See IRM, below, for more information regarding conversion or dismissal of Chapter 13 cases.  (10-01-2010)

  1. The debtor shall commence making payments proposed by a plan within 30 days after the plan is filed or the order for relief is entered, whichever is earlier. 11 USC § 1326(a)(1).

  2. The payments are to be retained by the trustee until confirmation or denial of confirmation.

    1. If a plan is confirmed, the trustee shall distribute such payments in accordance with the plan.

    2. If the plan is not confirmed, the trustee shall return the payments to the debtor after deducting allowed administrative claims under 11 USC § 503(b). The IRS can levy on the trustee to obtain these funds. Beam v. IRS, 192 F.3d 941 (9th Cir. 1999).  (10-01-2010)
Effect of Confirmation

  1. Once confirmed, a plan is binding, whether or not a claim is provided for and whether or not the creditor has objected to, accepted, or rejected the plan. 11 USC § 1327(a).

  2. Upon confirmation, property of the estate revests in the debtor except as otherwise provided in the plan or the order confirming the plan. 11 USC § 1327(b). Except as otherwise provided in the plan, the property revesting in the debtor is free and clear of any claim or interest of any creditor provided for in the plan. 11 USC § 1327(c). Postpetition earnings and income used to fund the plan are property of the estate after confirmation until the plan is completed or the case is dismissed. 11 USC § 1306(a)(2).

  3. The automatic stay is not lifted upon confirmation in a Chapter 13, but continues until the case is dismissed, closed, or the debtor is discharged. Therefore, additional contact with the debtor, demand for payment, and collection of prepetition liabilities may be prohibited. Contacting the debtor to investigate and determine the amount and existence of a liability does not violate the stay.  (10-01-2010)
Collection of Postpetition Taxes

  1. There are two potential alternatives for collecting postpetition taxes in a Chapter 13:

    1. administrative collection (e.g., levy); or

    2. filing a claim under 11 USC § 1305.

  2. The IRS may collect postpetition liabilities from the property of the debtor, but not from property of the estate. Collection of postpetition taxes during the pendency of a Chapter 13 case is complicated because of differing views in the courts as to what is property of the estate after confirmation. Filing a notice of federal tax lien for postpetition taxes does not violate the automatic stay.


    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."

  3. Most courts hold that although a Chapter 13 bankruptcy estate exists after confirmation, it is limited to the portion of the earnings or other property of the debtor necessary for the funding of the plan. Accordingly, any other assets are available for administrative collection of postpetition taxes. See, e.g., Telfair v. First Union Mortgage Corp., 216 F.3d 1333 (11th Cir. 2000); In re Heath, 115 F.3d 521 (7th Cir. 1997); In re Markowicz, 150 B.R. 461 (Bankr. D. Nev. 1993); In re Thompson, 142 B.R. 961 (Bankr. D. Colo. 1992); In re McKnight, 136 B.R. 891 (Bankr. S.D. Ga. 1992). However, the law in some districts is that all property remains in the estate after confirmation. See In re Aneiro, 72 B.R. 424 (Bankr. S.D. Calif. 1987). Additionally, examining a debtor’s plan is important because the plan may specify that all or s ome of the property is to remain property of the estate.

  4. As an alternative to pursuing postpetition claims outside bankruptcy, the IRS may file a claim for its postpetition taxes under 11 USC § 1305(a)(1).

    1. Such a claim is allowed or disallowed as though it were a prepetition claim. 11 USC § 1305(b).

    2. However, full payment of section 1305(a) claims and payment of interest and penalties thereon are permissive and not required elements of a Chapter 13 plan. 11 USC § 1322(b)(6). Accordingly the IRS does not file section 1305 claims in most jurisdictions.

    3. There is no bar date for filing a claim under 11 USC § 1305. The debtor cannot file this type of claim on behalf of the IRS; only the IRS can file it.  (10-01-2010)
Modification of the Plan

  1. Any time prior to the completion of payments under a confirmed plan, the plan may be modified upon the request of the debtor, the trustee, or an unsecured creditor, after notice and a hearing. 11 USC § 1329. The plan may be modified to:

    1. increase or reduce the amount of payments on claims in a particular class;

    2. extend or reduce the time for such payments;

    3. alter the amount of the distribution to a creditor whose claim is provided for by the plan to the extent necessary to take into account any payment of that claim other than under the plan; or

    4. under BAPCPA, reduce amounts to be paid under the plan by the amount expended by the debtor to purchase health insurance for himself or his dependents.

  2. The requirements of 11 USC §§ 1322 and 1325(a) apply to the modified plan.  (10-01-2010)
Revocation of Confirmation

  1. A party in interest may request revocation within 180 days of confirmation if the confirmation order was procured by fraud. 11 USC § 1330.

  2. If the court revokes an order of confirmation, it shall convert or dismiss the case, whichever is in the best interest of the creditors, unless within the time fixed by the court the debtor proposes and the court confirms a modification of the plan under 11 USC § 1329.  (10-01-2010)
Conversion or Dismissal

  1. The Chapter 13 debtor may convert the case to Chapter 7 at any time. 11 USC § 1307(a).

  2. On request of the debtor, the case may be dismissed at any time unless the case was previously converted from another chapter. 11 USC § 1307(b).

  3. Upon the request of an interested party or the United States Trustee and after notice and a hearing, the court may convert a case to Chapter 7 or dismiss it, whichever is in the best interest of creditors, for cause including:

    • unreasonable delay that is prejudicial to creditors,

    • material default with respect to the terms of a confirmed plan,

    • failure to commence making timely plan payments, and

    • under BAPCPA, failure to fulfill required postpetition domestic support obligations, 11 USC § 1307(c)(11).

  4. Although lack of good faith is not enumerated as a specific basis for dismissal, courts have recognized it as sufficient cause under 11 USC § 1307(c). Marrama v. Citizens Bank of Mass., 549 U.S. 365, 373 (2007); In re Alt, 305 F.3d 413 (6th Cir. 2002); In re Love, 957 F.2d 1350, 1354 (7th Cir. 1992); In re Maclean, 200 B.R. 417 (Bankr. M.D. Fla. 1996).

  5. Under BAPCPA, the court shall dismiss or convert the case for failure to file tax returns for the four-year period ending on the petition date and for any period after the petition date. 11 USC § 1307(e); In re Cushing, 401 B.R. 528 (1st Cir. BAP 2009); In re Perry, 389 B.R. 62 (Bankr. N.D. Ohio 2008). Dismissal or conversion under this provision is not automatic; consult with Area Counsel to determine whether a motion to dismiss or convert is appropriate.  (10-01-2010)

  1. Under 11 USC § 1328(a)(2), as amended by BAPCPA, the debtor is discharged of all debts provided for by the plan or disallowed under 11 USC § 502 (e.g., late claims filed after the bar date) except:

    1. trust fund taxes; and

    2. taxes for which returns were not filed, or were filed late and within two years of the petition date, or for which the debtor made a fraudulent return or made a willful attempt to evade or defeat the tax.

  2. BAPCPA adds new prerequisites to discharge in Chapter 13 cases. For example:

    1. Under 11 USC § 1328(a), the debtor must certify that he has satisfied any domestic support obligations.

    2. Under 11 USC § 1328(f), the debtor cannot receive a discharge if the debtor received a discharge in a Chapter 7, 11, or 12 case during the four-year period before the petition date, or received a discharge in a Chapter 13 case during the two-year period before the petition date.

    3. Under 11 USC § 1328(g), the court cannot grant the debtor a discharge unless the debtor has completed a course in personal financial management since filing the bankruptcy petition.

    4. Under 11 USC § 1328(h), the court cannot grant a discharge unless the court, after notice and a hearing, finds no reasonable cause for believing that the debtor has abused the bankruptcy system.

  3. Tax claims, including priority claims, will be discharged if they are provided for in the plan. Courts have held that "provided for" simply means "dealt with," "referred to," or "mentioned." In re Gregory , 705 F.2d 1118 (9th Cir. 1983); IRS v. DiPasquale, 2006 WL 1207990, 97 AFTR2d 2006-2233, 2006-1 USTC ¶ 50,318 (D.N.J. 2006); In re Bryant, 323 B.R. 635 (Bankr. E.D. Pa. 2005).

  4. The IRS’s claim may be discharged even if it is not paid in full or it is provided for in an amount less than that claimed. However, the plan must provide for the full payment of priority claims. Failure to so provide may render the plan void. The IRS, like other creditors, is bound by the terms of a confirmed plan. If the plan provides less than the amount of the IRS’s claim, the IRS should object to confirmation.


    The court can vacate an order of discharge where the IRS was not paid as required in the plan, and the court’s discharge order was based on the mistaken assumption that the IRS was paid. Cisneros v. United States, 994 F.2d 1462 (9th Cir. 1993); see also In re Midkiff, 342 F.3d 1194 (10th Cir. 2003).

  5. If the debtor does not complete plan payments, a hardship discharge may be granted under 11 USC § 1328(b). A hardship discharge is equivalent to the discharge granted under Chapter 7. All priority taxes and other nondischargeable taxes under 11 USC § 523 will not be discharged. The court may grant a hardship discharge, after notice and a hearing, only if:

    1. the failure to complete plan payments is due to circumstances beyond the debtor's control (e.g., loss of job);

    2. the value of the property actually distributed is at least what would have been distributed in a Chapter 7; and

    3. modification of the plan is not feasible.  (10-01-2010)
Collection Outside of the Bankruptcy Estate

  1. The IRS can collect nondischargeable liabilities from the exempt, abandoned, nonadministered and after-acquired property of an individual debtor.

  2. Regarding dischargeable liabilities, if a Notice of Federal Tax Lien (NFTL) has been filed prepetition, the IRS may collect on its lien from exempt or excluded property or property that has been abandoned or otherwise not administered by the trustee.

  3. Even if an NFTL has not been filed, the IRS may enforce its assessment lien against excluded property after the automatic stay is lifted. Property excluded from the estate includes ERISA-qualified pension plans and other plans described in 11 USC § 541(b).  (10-01-2010)
Chapter 12

  1. Chapter 12 is similar in many ways to a Chapter 13, but only a "family farmer or fisherman" can be a debtor under Chapter 12. A "family farmer" can be an individual, partnership, or corporation, with regular income, if specified percentages of the income, assets and debts of the debtor are farming-related. See 11 USC § 101(18), (19), (20).

  2. The Chapter 12 plan must provide for full payment of the IRS’s priority claims. Under BAPCPA, an exception to this rule exists when the claim is owed to a governmental unit and it arises as a result of the sale, transfer, exchange, or other disposition of farm assets used in the debtor’s operations, and the debtor receives a discharge. If the exception applies, the claim is treated as a general unsecured claim. 11 USC § 1222(a)(2)(A).


    The Service continues to litigate the definition of terms in section 1222(a)(2)(A) and the potential application of this exception to postpetition transactions. See Knudsen v. IRS, 581 F.3d 696 (8th Cir. 2009); In re Hall, 393 B.R. 857 (D. Ariz. 2008) (appeal pending in the Ninth Circuit); In re Dawes, 382 B.R. 509 (Bankr. D. Kan. 2008), aff'd, 415 B.R. 815 (D. Kan. Mar. 12, 2009) (appeal pending in the Tenth Circuit).

  3. BAPCPA requires that the plan provide for postpetition interest on nondischargeable unsecured claims to the extent that the debtor has disposable income remaining after paying all allowed claims in full. 11 USC § 1222(b)(11).

  4. Individual debtors remain liable for debts that are nondischargeable under 11 USC § 523.

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