QUESTION
If I list the IRS as a creditor in chapter 13, what happens if I get a refund?
Asked on Jan 26th, 2017 on Bankruptcy - Ohio
More details to this question:
I recently filed chapter 13. I have been to the 341 meeting of creditors. One of the creditors I have listed in my plan is the IRS. I owe taxes for 2011, 2012, 2013, and 2014. From what I understand, the taxes owed from 2011 and 2012 will be unsecured debts, while the 2013 and 2014 will be secured debts, because of the age of the debts. What happens to the refund I am expecting for 2016? Will the IRS simply keep it, and if so how does that affect my plan? Does the IRS hand it over to the trustee? How will I find this information? My attorney has not given me clear information and I am confused.
3 ANSWERS
The 2011 and 2012 taxes, if the tax returns were filed more than two years ago and an audit has not been done, will probably be general unsecured debts that will be discharged, and the remaining tax debts will be priority (not secured) debts that will not be discharged and will have to be paid in full through the Chapter 13 plan. If they are secured (if a tax lien was filed) you will have to pay them off with interest. If you get a refund from the federal taxes while you in the case, the IRS will probably offset that and apply it to the priority tax debts. Then they will amend their claim with the Bankruptcy Court and you will pay less through the plan.
Answered on Mar 27th, 2017 at 7:16 PM
Like most people trying to figure out the bankruptcy system on their own without a legal education or experience in the bankruptcy court, you are worrying about things that do not matter and overlooking the actual solution. The Chapter 13 Trustee will take your tax refund and use this money to pay your UNSECURED DEBT, essentially throwing away good money. Even the IRS has to comply with the automatic stay of the bankruptcy court. There is a reason why most people agree to pay for an experienced Chapter 13 attorney through their plan. The money that is paid to the attorney through the plan comes out of money you otherwise would be wasting paying your UNSECURED creditors. And the attorney should know all the tricks of the trade to make sure you save, rather than waste your money.
Answered on Mar 27th, 2017 at 7:16 PM
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The IRS (and other creditors) will offset any of your money they're holding against any money you owe them. So the IRS will apply your refund to the oldest year you owe, first to penalties, then interest, then taxes.
Answered on Mar 27th, 2017 at 7:48 AM