Opinion
Case No. 94-13471-SSM
April 24, 1998
Steven Heim, Joel Steinberg Associates, Fairfax, VA, of Counsel for the debtor
MEMORANDUM AND OPINION
This matter is before the court on the chapter 13 trustee's objection to confirmation of a modified plan filed by the debtor on February 27, 1998. A hearing was held on April 14, 1998, at which counsel for the debtor and the chapter 13 trustee appeared and presented argument. At the conclusion of the hearing, the court took the matter under advisement to review the applicable law.
Facts
The debtor, Amanda Estelle Bryant, filed a voluntary petition for relief under chapter 13 of the Bankruptcy Code in this court on September 9, 1994. An amended plan, filed on November 17, 1994, was confirmed by this court by order entered on January 27, 1995. The confirmed plan provides for payment to the chapter 13 trustee of $300 per month for 2 months, followed by $640 per month for balance of the plan, 58 months. General unsecured creditors receive a dividend of 44 cents on the dollar. On September 30, 1994, the Internal Revenue Service ("IRS") filed a proof of claim in this case asserting a $5,951.91 priority unsecured claim arising from unpaid income taxes of the debtor for the tax years 1991 through 1993, as well as a $1,528.95 general unsecured claim for penalties and interest. The existing plan provides for payment in full of the IRS's priority claim, with the general unsecured portion being paid pro rata with other general unsecured claims. At the time the plan was confirmed, there was no proof of claim filed by the Virginia Department of Taxation, nor was it listed as a creditor in Schedule E ("Creditors Holding Unsecured Priority Claims").
The order confirming the plan recites that the plan was filed on October 26, 1994; however, the only two plans to which the order could refer were filed on September 9, 1994, and November 17, 1994. Based on the recitation of the amount to be paid to the chapter 13 trustee in the confirmation order, it is clear that the plan that was confirmed was the amended plan dated November 17, 1994.
Long after the order confirming the debtor's plan had become final, the IRS filed, on February 26, 1996, a "Request for Payment of Taxes." The request states that it is "FILED PURSUANT TO BANKRUPTCY CODE SECTION 1305" and it asserts a claim against the debtor in the amount of $1,290.83 for the tax year ending December 31, 1994. On September 17, 1997, the Virginia Department of Taxation filed two proofs of claim. One asserts a $3,698.68 priority unsecured claim for the tax years 1990-1993. The other proof of claim asserts a $1,809.27 claim against the debtor for the tax year 1994. The supporting documents attached to this second proof of claim, however, have the handwritten notation "administrative" included, presumably meaning that the Department is asserting an administrative claim against the debtor.
The court notes that the request form is one the IRS normally uses to assert an administrative claim for post-petition taxes, but the language referring to an administrative claim is blacked out.
As noted below, post-petition taxes in a chapter 13 case for which a proof of claim is filed pursuant to § 1305 are not entitled to administrative expense priority, but are deemed to have arisen prepetition and are entitled to the same priority as other prepetition taxes. See In re Gyulafia, 65 B.R. 913, 917 (Bankr. D. Kan. 1986) (holding that income taxes incurred post-petition are not entitled to administrative expense status under § 503(b)(1), Bankruptcy Code, but are allowed as a post-petition claim under § 1305(a)(1)). Accordingly, the court will treat Virginia's claim as one filed pursuant to § 1305, Bankruptcy Code.
On February 27, 1998, the debtor filed the modified plan currently before the court. It proposes the same monthly payment — $640 — for the remaining 21 months of the plan. What it does, however, is to provide for the payment of both the Federal and Virginia tax claims that were filed after the entry of the confirmation order. Specifically, the modified plan proposes to pay the IRS $7,242.74 and Virginia Department of Taxation $5,507.95 on account of their unsecured priority claims. Since the payments being made to the chapter 13 trustee remain unchanged in amount, the inclusion of the tax claims reduces the dividend to the general unsecured creditors to 31 cents on the dollar. With the modified plan, the debtor filed Amended Schedules I ("Current Income") and J ("Current Expenditures"). Schedule I reflects $2,196.50 in monthly income while Schedule J reflects $1,556 in monthly expenses, leaving $640.50 as disposable income with which to fund the plan. The trustee has not challenged any specific item of expense, and the expenses on their face appear to be reasonable.
The modified plan asserts that this amount is the "balance due" to the IRS, presumably meaning the remaining balance after crediting payments the chapter 13 trustee has already made.
On March 20, 1998, the chapter 13 trustee filed the objection to confirmation currently before the court. Although the stated ground of objection is that the modified plan fails to meet the disposable income test of § 1325(b)(1)(B), Bankruptcy Code, the actual thrust of the trustee's argument at the hearing was that any taxes for the year in which the debtor filed her bankruptcy petition — 1994 — are post-petition taxes which are the responsibility of the debtor and should not be included in a modified plan to the detriment of unsecured creditors. The trustee has not objected to the inclusion of the Virginia Department of Taxation claim to the extent of $3,698.68, which represents prepetition taxes.
Neither the debtor nor the trustee has objected to the Virginia Department of Taxation's proof of claim as being filed late under § 502(b)(9), Bankruptcy Code, presumably because the Department was not listed as a creditor in the debtor's original schedules. Under § 502(a), a proof of claim is deemed allowed unless and until a party in interest objects to the claim.
Conclusions of Law A.
This court has jurisdiction of this controversy under 28 U.S.C. § 1334 and 157(a) and the general order of reference from the United States District Court for the Eastern District of Virginia dated August 15, 1984. Under 28 U.S.C. § 157(b)(2)(L), this is a core proceeding in which final orders and judgments may be entered by a bankruptcy judge, subject to the right of appeal under 28 U.S.C. § 158.
B.
Under § 1329, Bankruptcy Code, certain parties in interest may seek a modification of the confirmed plan "at any time" before completion of the plan. Section 1329, provides in relevant part:
(a) At any time after confirmation of the plan but before the completion of payments under such plan, the plan may be modified, upon request of the debtor, the trustee, or the holder of an allowed unsecured claim, to —
(1) increase or reduce the amount of payments on claims of a particular class provided for by the plan;
(2) extend or reduce the time for such payments; or
(3) alter the amount of the distribution to a creditor whose claim is provided for by the plan to the extent necessary to take account of any payment of such claim other than under the plan.
Clearly, § 1329(a) contemplates that the debtor may request modification of a confirmed chapter 13 plan. Unlike a trustee or other party in interest is seeking to modify a confirmed plan, the debtor need not show any change in circumstances. See In re Davis, 34 B.R. 319, 319-20 (Bankr. E.D. Va. 1983) (Bostetter, C.J.); 8 Collier on Bankruptcy ¶ 1329.02, at 1329-4 (Lawrence P. King, ed., 15th ed. rev. 1998). As noted by Collier, since chapter 13 is a completely voluntary choice on the part of the debtor, the debtor may propose any modified plan that satisfies the requirements of chapter 13. 8 Collier on Bankruptcy ¶ 1329.02, at 1329-4. Moreover, while resjudicata will prohibit many modifications sought by the trustee or a party in interest, the debtor is not so affected since the debtor could achieve the same result by dismissing the current chapter 13 case and refiling. 8 Collier on Bankruptcy ¶ 1329.02, at 1329-4.
In the plan before the court, the debtor is seeking to provide for the claims filed by the IRS and the Virginia Department of Taxation pursuant to § 1305, Bankruptcy Code for the tax year 1994 — the year in which she filed her bankruptcy petition. Section 1305 of the Bankruptcy Code provides for an exception to the general rule that a bankruptcy case affects only claims arising before the filing of the bankruptcy petition. United States v. Ripley (In re Ripley), 926 F.2d 440, 443 (5th Cir. 1991); In re Owens, 67 B.R. 418, 425 (Bankr. E.D. Pa. 1987), aff'd, United States v. Owens, 84 B.R. 361 (E.D. Pa. 1988); 8 Collier on Bankruptcy ¶ 1305.01, at 1305-2. Relevant to the present controversy, § 1305(a)(1) provides that "[a] proof of claim may be filed by any entity that holds a claim against the debtor for taxes that become payable to a governmental unit while the case is pending." In cases brought under chapter 13 of the Bankruptcy Code, unlike those brought by "individuals" under chapters 7, 11, or 12, a separate taxable entity is not created, and any income of the debtor, or the estate, is taxed to the debtor individually. Compare § 346(b)(1), Bankruptcy Code (requiring post-petition income of the estate in cases brought by individuals under chapters 7, 11, or 12 to be taxed to the estate), with § 346(d) (requiring post-petition income of the estate or the debtor in cases brought under chapter 13 to be taxed to the debtor); see also I.R.C. § 1398(a), (d) (providing for an election to be made by an individual debtor in cases brought under chapters 7 or 11 to terminate the debtor's taxable year as of the day before the commencement of the case); In re Gyulafia, 65 B.R. 913, 917 (Bankr. D. Kan. 1986) (noting that since post-petition taxes cannot be charged to the estate in a case brought under chapter 13, such taxes are not entitled to an administrative priority under § 503(b)(1)(A) as an "actual, necessary cost and expense of preserving the estate"); 15 Collier on Bankruptcy ¶¶ TX1.10[10], at TX1-75 TX2.03[2][ii], at TX2-14. Post-petition claims for taxes filed under § 1305(a) promotes a policy of allowing a debtor, whose budget may already be stretched thin by the confirmed chapter 13 plan, a longer time (i.e., through the plan) to pay the post-petition tax than would otherwise be permitted under applicable nonbankruptcy law. Ripley, 926 F.2d at 443 n. 12; In re King, — B.R. —, 1998 WL 120275, at *2 (Bankr. S.D. Cal. 1998); Dixon v. United States (In re Dixon), 210 B.R. 610, 615-16 (Bankr. W.D. Okla. 1997); In re Cotton, 102 B.R. 891, 893 (Bankr. M.D. Ga. 1989); Gyulafia, 65 B.R. at 917; 8 Collier on Bankruptcy ¶ 1305.02[1], at 1305-4.
Although not an issue in this particular case, the court notes briefly that courts have disagreed as to exactly when taxes "become payable" for purposes of § 1305. Compare Dixon v. United States (In re Dixon), 210 B.R. 610, 615 (Bankr. W.D. Okla. 1997) (taxes for the year in which the debtor filed become payable immediately upon close of the calendar year in which they accrued), aff'd, — B.R. —, 1998 WL 97214, at *2-3 (Bankr. 10th Cir. 1998) (also reasoning that a debtor's tax liability becomes payable at the close of the tax year), with United States v. Ripley (In re Ripley), 926 F.2d 440, 444 (5th Cir. 1991) (taxes for the year in which the debtor filed become payable on April 15 of the following year — the date on which the debtor's tax return was due); In re Epstein, 200 B.R. 611, 613 (Bankr. S.D. Ohio 1996) (same); Matravers v. United States (In re Matravers), 149 B.R. 204, 206 (Bankr. D. Utah 1993) (same); In re Phillips, 27 B.R. 94, 95 (Bankr. E.D. Va. 1983) (Bostetter, C.J.)(same). The court need not reach that issue, however, because under either standard, the 1994 taxes in this case arise post-petition.
Whether to file a claim under § 1305(a) is a voluntary decision on behalf of the governmental unit, and it is well established that the debtor, trustee, or any other party in interest other than the governmental unit cannot file a proof of claim on behalf of the taxing authority. See, e.g., Ripley, 926 F.2d at 443 n. 12; Dixon, 210 B.R. at 612, 615; Epstein, 200 B.R. at 614; In re Dickey, 64 B.R. 3, 4 (Bankr. E.D. Va. 1985) (Bostetter, C.J.); Gyulafia, 65 B.R. at 915-16; 8 Collier on Bankruptcy ¶ 1305.02, at 1305-2 to 3. Once filed, however, § 1305(b) provides that the claim is allowed or disallowed under § 502 and is entitled to priority unsecured status under § 507(a)(8) as if the claim had arisen prepetition. See King, 1998 WL 120275, at *2 (noting that § 1305(b) creates the "legal fiction" of transforming a post-petition claim into a prepetition claim entitled to priority status). The holder of a post-petition claim may elect not to file a claim, thus waiving the right to distribution under the chapter 13 plan, choosing instead to recover against the debtor after the conclusion of the plan. 8 Collier on Bankruptcy ¶ 1305.02, at 1305-3. Of course, any post-petition claim for taxes not provided for by the plan is unaffected by the debtor's discharge under § 1328(a). 8 Collier on Bankruptcy ¶ 1305.02, at 1305-2 to 3. Finally, the court notes that it is by no means clear as to when the proof of claim asserting a post-petition claim must be filed. Since it is a claim arising post-petition, Collier suggests that the proof of claim may be filed at any time during the pendency of the chapter 13 case (with leave of court), and that the deadline is certainly later than that for prepetition claims. 8 Collier on Bankruptcy ¶ 1305.02, at 1305-3 to 4.
This issue has not been raised by the parties and since it is not squarely presented, the court declines to address it.
As noted above, § 1329(b)(1) requires that any modified plan proposed by the debtor must comply with the requirements of §§ 1322 and 1325, Bankruptcy Code. See Davis, 34 B.R. at 320. Once the governmental authorities have elected to file claims under § 1305(a)(1), such claims are "allowed" and are entitled to priority status unless successfully objected to. Under § 1322(a)(2), Bankruptcy Code, the debtor's plan must pay priority claims in full. The debtor's modified plan filed in this case does just that. While clearly the effect of providing for this post-petition claim is to lower the dividend to unsecured creditors, the preferred status of the tax authorities is one that Congress has conferred. The debtor here has no option but to propose a modified plan that accounts for the claims filed under § 1305(a)(1) because the plan, as confirmed, was not capable of being performed. To penalize the debtor for proposing a modified plan which complies with §§ 1322 and 1325 to account for these claims would certainly be anomalous. As to the trustee's formal ground of objection — that the debtor is not contributing all of her disposable income to the plan — the court finds that the debtor is contributing all of her disposable income, and that her expenses are within the range of reasonableness. Accordingly, the court will overrule the trustee's objection.
While § 1322(b)(6) provides that the plan may provide for the payment of claims filed pursuant to § 1305, the court is persuaded that § 1322(a)(2) controls and requires that the plan provide for payment of the claims in full as claims entitled to priority status under § 507(a)(8). Since § 1305(b) deems post-petition claims filed under that section as having arisen prepetition, a claim arising from unpaid income taxes would be entitled to priority status under § 507(a)(8). See King, 1998 WL 120275, at *2. The court believes that section 1322(b)(6), instead, refers to those claims arising from post-petition claims filed pursuant to § 1305(a)(2) (consumer debts for property or services necessary for the debtor's performance under the plan).
This is not to say that the incurrence of large post-petition tax liabilities might not, depending on the circumstances, weigh in the "good faith" analysis under § 1325(a)(3), Bankruptcy Code. But nothing in the facts of this case suggests a deliberate or continuing disregard by the debtor of her tax obligations.
C.
A separate order will be entered overruling the trustee's objection and confirming the modified plan.