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  1. #1

    Default Filing Bankruptcy with Tax Debt, Not Consumer Debt

    I had a chapter 13 bankruptcy filed by my attorney. The bankruptcy was filed to deal with back taxes. 95% of the claims are taxes. 90% of the taxes are dischargeable under a chapter 7 bankruptcy the other amount are priority taxes. My attorney I believe truly didn't know what he was doing because he told I had to file chapter 13 because my income was above the state median. Everything I read dealing with 707(B) that deals with 'substantial abuse' and the new means tests under 707(B) deals with debtors whose debts are 'primarily consumer debts'. Tax debt in numerous cases has been classified by the courts has non-consumer debt(Westberry v. IRS). I have instructed my attorney to convert my chapter 13 to chapter 7 but he still has doubts because he says I have disposable income. He calculated my disposable income using form 22C and the IRS allowable standards, my understanding is that those forms and calculations fall under the authority again of 707(B) which deals with consumer debt. I believe I can refile schedule 6I & J reflecting my actual expenses. Am I wrong? What happens if you do have some disposable income in a case where there is no consumer debt, does the question of 'abuse' apply? In addition what will happen to the trustee payments I had made before my confirmation and the 1 payment after confirmation? Were they applied to the priority taxes under the plan? Or can I get them refunded back?
    To make matters whose my attorney has been unresponsive for the last week. I instructed him to covert the case last week on the 20th so that the additional trustee payment wouldn't be taken from my paycheck. He didn't and I instructed him at least 3 times since then to convert, I have checked PACER and still no motion to convert. I have printed up the motions myself, including the motion to file amended schedule 6I & J and the reasons why. I plan on dropping them off at the courthouse tomorrow morning if I don't hear from my attorney.
    The attorney's error in not filing the correct bankruptcy has thrown my life into a complete tailspin over the last 8 months. Could he be worried about liability? I didn't give him instructions all through the bankruptcy process explaining why the 7 was not subject to means test and he choose to dismiss me. In addition one of the initial IRS claims had inflated priority claims attached by $24,000. I told my attorney and gave him the reasoning and the IRS's own documents to change it to unsecured non-priority status, he refused to object to the claim. This resulted in an inflated confirmation plan. I sent a letter to the IRS giving them the same reasoning and documents and they sent a amended claim to the bankruptcy within 48 hours with the correct priority tax amount. Could the IRS claim be considered a fraudulent because it artificialy inflated the plan payment with erroneous priority claim and then amended it post-confirmation?
    Any help would be appreciated on going forward without my attorney.

  2. #2
    Join Date
    Nov 2006

    Default Re: Filing Bankruptcy with Tax debt not consumer debt.

    Wouldn't you have been better off hiring a tax attorney to negotiate a settlement and repayment plan with the IRS rather than a bankruptcy filing?

  3. #3

    Default Re: Filing Bankruptcy with Tax debt not consumer debt.

    I tried for 3 years an offer-in-compromise with IRS. State Comptroller
    wouldn't even start the offer-in-compromise. It's not that I wanted to file
    my credit scores were in the high 700's. The pisser was more than half
    of the tax debt is penalties and interest and they wouldn't budge on it.
    Basically I would have to live on nothing for the next 10 years under their repayment plan and I couldn't put my family through that. Those advertisement for settling pennies on the dollar are bogus.
    But one plus is I have learned more about tax debts and how they are treated by the court, means testing and anything else related to tax debts than most attorneys. My attorney for my bankruptcy even listed his tax has a practice area. It was a shame that it took a letter from me to get the IRS to amend their claim.

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