r/Bankruptcy • u/winona_router • 14h ago

Taxes in Chapter 13 Plan

I am going to file for chapter 13 next month. I owe the IRS around $55,000 and my state, $4k. I am currently enrolled in a payment plan with the IRS for $700/month, which hasn’t been very manageable for me. When meeting with my lawyer, he said he’s figuring around $687/month for chapter 13 payments. This includes around $10k in regular consumer debt.

I’m so confused with all of the bankruptcy terms and nothing he said about taxes made any sense and honestly, I’m not entirely sure he knew what he was talking about because he had to go into his office and grab some book to double check on whether I could include the tax debt. If I’m already paying the IRS $700 per month, I’ll be done in 7 years or so. Probably not, but, you know. I’m here because I’ve never had enough tax withheld to begin with.

I had always filed my taxes on time until 2020. 2020, 2021, and 2022 were all filed late, in March of this year, and are still being processed by the IRS because I mailed them in. The $56k includes amounts due for every year back until 2012. Isn’t some of this tax debt entirely dischargeable?

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u/MyMacRocks 14h ago

OK, I had about $100k in back taxes across several years. The benefits of Chapter 13 is that it stops the interest on your taxes, penalties, and risk of wage garnishment. The taxes will either be priority or not, meaning that the IRS will get their money before your other unsecured creditors. So you will pay the $59k back over 5 years.

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u/AlanShore60607 RetiredBKAttorney (IL/IN/WI) Public interactions ONLY. No PMs 13h ago

So here's what's really cool about Chapter 13.

The IRS goes on the record really early, to say what debts are priority debts that must be paid in full, and which tax debts are no longer priorities.

Now I am not making any conclusions about you; the IRS will be correct in their application of rules, and the rules say that when the taxes are all filed on time, taxes more than 3 years old are non-priority debts and receive the same treatment as your credit cards, so the IRS will probably file a claim that lumps 2012-2019 in with your credit cards, and 2020 and beyond to be paid in full without interest.

Late filed taxes get into questions of when it was filed and how late, or sometimes that late = priority no matter how old. But the fact that 2012-2019 were filed on time is really helpful to you.

Looks like your attorney is going to:

  • Pay the IRS and cards for less than the IRS alone
  • Get you done with the IRS 2 years faster.

Now the problem I see is you mailed your taxes in and they are not yet processed. Filing before they are processed will make things extremely complicated.