Opinion
CASE NUMBER: 03-03059-5-JRL.
February 25, 2010
ORDER SUSTAINING OBJECTION TO CLAIM
This matter came before the court on the debtor's objection to the claim of the Internal Revenue Service ("IRS"). A hearing on this matter was held on January 13, 2010, in Raleigh, North Carolina.
BACKGROUND
The debtor filed for relief under chapter 13 of the Bankruptcy Code on August 27, 2003. On May 17, 2004, the debtor's plan was confirmed. The debtor successfully made all payments into her confirmed plan, the final payment being received by the trustee on July 28, 2009. On September 14, 2009, before the entry of discharge, the IRS filed a proof of claim in the amount of $18,600.00 based upon unfiled tax returns for the years 2003, 2005, 2006, 2007, and 2008. The debtor objects on that basis that her plan is completed and she is awaiting discharge; therefore, the IRS' claim is too late. The issue before the court is whether the debtor is required to modify the confirmed plan and provide for payment of the IRS claim while discharge is still pending.
DISCUSSION
It is well settled in this court that pursuant to 11 U.S.C. § 1305(a)(1), a proof of claim may be filed by a governmental unit for taxes that become payable during the pendency of a case.In re Crowell, Case No. 98-06693-8-ATS (Bankr. E.D.N.C. Nov. 14, 2003). When a claim is filed under § 1305(a)(1), § 1305(b) treats the claim as though the debt owing arose pre-petition. Therefore, a claim for post-petition taxes is entitled to the same priority as pre-petition taxes under § 507. Id.; See also In re King, 217 B.R. 623, 625 (Bankr. S.D. Cal. 1998).
Since the post-petition taxes have priority under 11 U.S.C. § 507, § 1322(a)(2) is invoked. Section 1322(a)(2) requires that a chapter 13 plan provide for full payment of all claims entitled to § 507 priority, or else the plan cannot be confirmed. King, 217 B.R. 623 at 625. Where the plan has already been confirmed, § 1329 will allow for modification. The legal fiction of allowing post-petition claims to be paid out over the life of a modified plan generally benefits the debtor. Instead of being liable under non-bankruptcy laws for a lump sum of money, the debtor is afforded the breathing room a plan often provides. See In re Bryant, 1998 WL 412632, * 2 (Bankr. E.D. Va. 1998).
The present case is different than In re Frutiger, Case No. 02-01181-5-ATS (Bankr. E.D.N.C. June 28, 2006). In Frutiger, the debtors argued that 11 U.S.C. §§ 1305(a)(1) and 1322(a)(2) should not be applied because the claim of the IRS was filed too late to allow for modification of the plan and payment of the claim in full. The Frutiger's chapter 13 case was filed in April of 2002 and confirmed in October 2002. In December 2005, the IRS filed a proof of claim for failure to pay post-petition taxes. On February 27, 2006, the trustee moved to dismiss the case for infeasibility because the plan failed to pay priority claims in full. On June 28, 2006, this court entered an order directing the Frutigers to file a motion to modify their plan to accommodate the taxes in light of its previous decision in In re Crowell. A modified plan was approved on December 8, 2006, which, among other things, increased payments for the months of December 2006 through October 2007. The case was completed on April 23, 2007, upon the trustee's final report and accounting. When the Frutigers objected to the motion to dismiss on the basis that the IRS was too late, it is quite clear that they were still making payments into their ongoing plan.
Therein lies the rub of the present case. Pursuant to 11 U.S.C. § 1329(a), modification of a confirmed plan may occur at anytime after confirmation, but before the completion of plan payments. (Emphasis added). Although the IRS was entitled to file its proof of claim in the present case for the unfiled taxes, it would be inequitable to hold the debtor accountable for the taxes within the plan when she is without the option to modify. Moreover, from a practical standpoint, the IRS is not harmed by the court's finding that their proof of claim was filed too late. Once the pending discharge is granted, the debtor will still be liable on the post-petition debt. 8 Collier on Bankruptcy ¶ 1305.02 (15th ed.). Furthermore, granting the discharge should theoretically give the debtor more income with which to pay the debt owing to the IRS, all other creditors under the plan being discharged.
The procedural posture of this case also supports this result. Section 1328(d) requires the court to enter the discharge in a chapter 13 case "as soon as practicable after completion by the debtor of payments under the plan. . . ." The order confirming the plan in this case required the trustee to submit his final report within 30 days of completion of payments. This case should have been over before the IRS claim was ever filed, and the debtor, who did everything the plan required, should not be penalized for delay in the closure of her case completely beyond her control.
Based on the foregoing, the objection to claim is SUSTAINED.