New Jersey Attorney Explains The Tax Process Of A Chapter 13 Case
I have written extensively in other blogs about how to determine the amount of a debtor’s tax debt, the portion of the tax debt that is dischargeable and the amount that must be paid through a New Jersey chapter 13 bankruptcy plan. This blog explains the chapter 13 process of handling tax debt. The bankruptcy code applies the same laws and procedures to the IRS and State of New Jersey, Division of Taxation, which includes federal and state income tax debt.
In a New Jersey chapter 13, all tax returns must have been filed with the taxing authorities, including both federal and state tax returns. If any returns have not been filed, the trustee may ask for the case to be dismissed at the first scheduled Confirmation Hearing. Dismissal means that the case is thrown out. The trustee is responsible for administering the bankruptcy case and to ensure that the debtor pays the appropriate creditors, in the appropriate amounts.
The IRS and the State of New Jersey, Division of Taxation, must file a Proof of Claim with the court, reflecting the amount of debt owed for each year and the classification of the debt for each year. If the taxing entity’s proof of claim reflects that a tax return has not been filed with the taxing entity, the trustee will not permit the debtor to move forward with their case. The trustee will require that the taxing authority file an amended claim with the court, reflecting that all returns have been filed.
However, the trustee will typically agree to postpone the Confirmation Hearing to allow time for the taxing authority to modify their claim. The debtors’ attorney may forward the debtors’ returns to the IRS or State, directly, and resolve the matter without court intervention. However, if the parties are unable to resolve the matter, the debtors’ attorney may need to file a motion with the court objecting to their proof of claim. In most circumstances, all issues are resolved after the motion is filed with the court, and without the need for the judges determination.
If the taxing authority files a claim reflecting an incorrect classification or amount due, the debtors’ attorney may attempt to resolve the matter in the same manner, as explained. Under these circumstances, the Confirmation Hearing date, must be postponed to allow for the resolution of these tax issues. The trustee’s job is to ensure that the tax claim reflects that all returns have been filed and that the debtor has sufficient disposable income to pay secured and priority class tax debt. It is the debtors’ attorney’s job to ensure that the tax claim reflects an accurate figure, not the trustee.
Robert Manchel may be reached at 866 503 5644 to discuss your bankruptcy questions.