QUESTION
What happens to income taxes when one files a chapter 13?
Asked on Nov 19th, 2013 on Bankruptcy - Michigan
More details to this question:
I have completed the chapter 13 payment plan, however the trustee paid 2008 income taxes I had already paid through my refunds being taken by the IRS. I contacted the IRS who informed me that they will send the refund back to the Trustee. I contacted my attorney and the trustee who have both said that the amount will go to the unsecured creditors. The 2008 taxes were included in my bankruptcy but the IRS took my refunds to pay the debt prior to the trustee paying them. I don't think it fair to lose money that has been paid to other creditors because the debt was already paid. The trustee already sent a check prior to this to me for $300.00 for overpayment but said I will get none of the $4,300.00 they paid to the IRS on a claim already paid off. Any help will be appreciated.
3 ANSWERS
Deborah F. Bowinski
Unfortunately, your attorney and trustee are correct. Your plan probably includes language that directs funds not distributes to classes one, two, or three to be paid out to general unsecured creditors. Your plan payments and disposable income did not change merely because the IRS intercepted your ta refunds during your plan. I doubt there is anything to be done at this point.
Answered on Nov 20th, 2013 at 10:45 PM
You should have read your plan more carefully. All tax refunds you receive while you are in Chapter 13 go towards paying unsecured debts. Your plan payments have to fund the repayment of tax debts you had at the time you filed Chapter 13.
Answered on Nov 20th, 2013 at 2:27 PM
Appellate Attorney serving Grosse Pointe Farms, MI
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Musilli Brennan Associates, PLLC
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Where is your bankruptcy attorney? If you do not have one, get one. Generally, in a bankruptcy all available assets are gathered and distributed to the creditors, including tax returns.
Answered on Nov 20th, 2013 at 12:37 PM