If you owe taxes during Chapter 13 for a year that ends after you filed, that balance is generally not part of your original plan. Post-petition taxes must normally be paid as they come due, though the Bankruptcy Code lets the IRS or FTB file a claim so the debt can be added to your plan. Unfiled returns can also put the case at risk.
If you just learned you owe a new balance and you are partway through a plan, call (415) 754-0115 to schedule your free consultation, or send a message through our contact page so an attorney can look at your plan and the notice.
Pre-petition versus post-petition taxes
The date you filed draws a line through your tax debts.
- Pre-petition taxes are for years and periods before filing. Your plan deals with them. Recent income taxes are usually priority claims that must be paid in full through the plan, while some older taxes may be treated as general unsecured debt. Our article on Chapter 13 and back taxes explains how those claims are sorted.
- Post-petition taxes are for tax years that end after filing. You are expected to file those returns on time and pay what you owe, just as you would outside bankruptcy.
The year you file can be tricky. Part of that year's income was earned before filing and part after, and the way that tax is treated depends on the type of tax and the timing. This is worth confirming with your attorney rather than guessing.
Why unfiled returns are a dismissal risk
Chapter 13 has firm filing rules. Under Section 1308, returns for the four tax years before your case must be filed by the day before the 341 meeting, and failing to do so is a ground for dismissal or conversion under Section 1307(e). During the case, Section 521(j) lets a taxing authority ask the court to dismiss or convert if you fail to file a return that comes due after filing or to obtain a proper extension; if the return still is not filed within 90 days of that request, the court must dismiss or convert.
Many plans and trustees also require you to send copies of each year's return to the trustee. In some plans, tax refunds above a certain level must be turned over to increase payments to creditors. Your confirmed plan controls, so read it or ask your attorney.
Practical steps that prevent problems
- File every federal and California return by the deadline, or request an extension on time.
- Check your W-4 and California withholding after any change in income, a new job or a change in dependents.
- If you are self-employed, keep making estimated tax payments. Our guide to Chapter 13 for sole proprietors covers this issue in more detail.
- Send the trustee any return or refund information the plan requires.
Options if you owe taxes during Chapter 13
A new balance does not automatically end your case. Depending on the amount and your budget, an attorney may discuss several paths.
Paying the balance directly
If the amount is manageable, paying the IRS or Franchise Tax Board in full outside the plan can be the simplest route. It avoids changes to the plan and keeps you current.
Adding the tax through a post-petition claim
Section 1305 of the Bankruptcy Code allows a taxing authority to file a proof of claim for taxes that become payable while the case is pending. If that claim is allowed, the plan can be modified to pay it through the trustee. This requires the taxing authority to file the claim, and it usually means an amended plan and a recalculated payment.
When a plan modification makes sense
A modification may be worth considering when the tax balance is too large to pay at once and you cannot get a separate payment arrangement in place. Our article on Chapter 13 plan modification explains how that process works and what the trustee reviews.
Working out terms with the IRS or FTB
In some cases, the taxing authority may agree to an installment arrangement for the post-petition balance, subject to the trustee's view and the plan terms. Whether this is realistic depends on your overall budget and the agency's practices.
How the automatic stay applies to new tax debt
The automatic stay protects property of the bankruptcy estate, which in Chapter 13 generally includes your post-filing earnings while the case is open. That can limit how the IRS or FTB collects a post-petition balance while the case is pending, although the answer can change if your confirmed plan returns property to you at confirmation. But the stay is not a license to ignore new taxes. Unpaid balances can lead to motions in the bankruptcy case, and collection can resume once the case closes or is dismissed.
That is why a new tax balance is a bankruptcy case issue, not just a tax issue. The Somal Law Firm handles both bankruptcy and IRS tax disputes for clients in Pleasanton, Dublin, Livermore and across Alameda and Contra Costa Counties, so attorney Bob Somal can look at the IRS or FTB notice and your Chapter 13 plan together.
Frequently asked questions
Can I add new taxes to my Chapter 13 plan?
Possibly. If the IRS or FTB files a post-petition claim under Section 1305 and it is allowed, the plan can be modified to include it. The agency must file the claim, and the plan must still be feasible.
What happens if I do not file a tax return during Chapter 13?
A taxing authority can ask the court to dismiss or convert your case, and if the return is still not filed within 90 days of that request, the court must do so. Filing on time, or obtaining an extension, helps protect the case.
Will the trustee take my tax refund?
It depends on your confirmed plan and local trustee practice. Some plans require refunds above a set amount to be paid into the plan, so check before spending a refund.
Are taxes owed for the year I filed treated as new debt?
Not always. The year of filing can be split or treated in different ways depending on the tax and timing, so an attorney should review it.
Owing taxes during Chapter 13 is easier to address when you act early. Call (415) 754-0115 to schedule your free consultation, or reach us through our contact page. Bring the tax notice and your plan, and we will explain the options for keeping both your case and your tax situation on track.
Attorney Advertising. This article is general legal information for Bay Area residents, not legal advice, and does not create an attorney–client relationship. Every situation is different — please consult a licensed attorney about your specific circumstances.