Chapter 13

Curing a Mortgage: Overview of Bankruptcy – Chapter 13 and Why to File, Part 2

March 14, 2014 by TomScottLaw

Series: #7 0f 13
Previously, we took a look at reasons why a debtor might be disqualified from filing Chapter 7, and have to file for bankruptcy under Chapter 13. Now, we will begin to discuss reason why a debtor would want to file a Chapter 13 instead of Chapter 7, the first being curing a mortgage.

What does Curing a Mortgage Mean? How does it Affect My Bankruptcy?

Put simply, a mortgage is cured by paying all outstanding payments currently in arrears, along with any fines, late fees, attorney’s fees, and any penalties that may be due and owing.
Mortgage creditors are afforded special protection in Chapter 13; a debt secured by a principal residence of the debtor cannot be modified through the filing of a bankruptcy. See 11 U.S.C. §1322*(b)(5) and Nobleman v. American Savings Bank, 113 S. Ct. 2106 (1993)*, holding that home mortgages secured only by the debtor’s personal residences cannot be modified to discharge any unsecured portion of the claim.
With the few exceptions discussed below, a Chapter 13 is useful for curing mortgage arrears, as it provides up to five years to accomplish the cure.
In Indiana, a sheriffs’ sale is not final until the gavel falls, and many Chapter 13’s are filed on the eve of the sale to save the family home.
When curing a mortgage in a plan, the cure runs through the month that the petition is filed and the current mortgage payments begin the following month.
When setting up a mortgage cure in a plan, it is important to estimate the amount of the arrears as closely as you can. Note that pursuant to Southern District of Indiana General Order 09-0005, for all cases filed on or after August 1, 2009, if there is a pre-petition arrearage claim on a mortgage secured by the debtor’s residential real property, then both pre-petition arrears and post-petition mortgage installments shall be made through the trustee.
Keep in mind then that the mortgage installment is also subject to the trustee percentage fee (currently anywhere from 6.5-10% in the Indianapolis division).

Exceptions to Curing a Mortgage

Balloon mortgages.
Plans can also propose to “cure” a balloon payment. If the balloon payment became due before the Chapter 13 was filed, and can be paid in full over the life of the plan, several cases hold that this is a proper use of a Chapter 13. See In re Nepil, 206 B.R. 72 (Bankr. D.N.J. 1997) and In re Chang, 185 B.R. 50 (Bankr. N.D. Ill. 1995), interpreting §1322(c)(2) to allow the payment of a balloon mortgage that matured pre-petition.
It is not as clear whether an unmatured balloon payment (unmatured at the date of filing) can be cured in a Chapter 13 plan. Arguably, if the balloon payment becomes due during life of the plan, it is proper to provide for the full payment in the plan. Again, it is important to provide both the amount of the balloon and the interest factor.
Cramming a mortgage – cross-collateralization.
In some limited instances, case law has provided circumstances in which a residential mortgage can be crammed.First, if the mortgage is cross-collateralized with any other collateral, it loses the protection afforded under the Code. §1322(b)(2) provides that secured claim holders may be modified “other than a claim secured only by a security interest in real property that is the debtor’s principal residence.”
Case law has interpreted that to mean if the real estate is income-producing (rental income), if the mortgage includes the residence and commercial property, or if the mortgage includes the residence and equipment, other acreage or anything other than the personal residence, the mortgage can be “crammed” to the fair market value.
If you have a mortgage that you wish to cram, valuation becomes the primary issue, and value agreements become more difficult to orchestrate. If you are attempting a mortgage cram, it would be in your best interests to have a recent appraisal of the property available to the creditor to substantiate your offer.
Also, remember that you need to deduct the value of the other pledged collateral, and the other pledged collateral must also be provided for in the plan – either with a payment offer or to surrender.
Cramming an undersecured junior mortgage.
Additionally, there have been some decisions that allow the debtor to cram a junior mortgage if there is absolutely no equity to support the note. For more about this issue, see:
1. Matter of Sanders, 202 B.R. 986 (Bankr. D. Neb. 1996), holding that the “creditor must have a secured claim in both the literal and Code sense to have its rights protected by the anti-modification clause.”
2. In re Geyer, 203 B.R. 726 (Bankr. S.D. Cal. 1996), “where the estate’s interest in property is zero, the claim under §506(a) is completely unsecured and thus not entitled to §1322(b)(2) protection.”
In determining the amount of equity available to support a mortgage, you may not deduct any exemptions to which the debtor may be entitled. Again, an appraisal is vital in attempting this type of cram.
Tax Sale Redemption.
A Chapter 13 plan may be proposed to allow for the redemption of a property from a tax sale.In Indiana, a debtor has one year from the date of the tax sale to redeem the subject real estate.
The trustee is often reluctant to take on the responsibility of redeeming tax sale properties due to the changing redemption amount and deadline for making the redemption. As a result, the trustee will usually require the redemption to be accomplished outside the plan by the debtor prior to the payment of any mortgage arrears by the Trustee.
Another possibility is that the mortgage creditor may redeem the property, and then include the redemption amount in their arrears claim. This is probably the best method because the mortgage company is assured that the property has been redeemed, and they are often in a position to redeem it much more quickly than is the debtor.

Next: Cramming

* Source: Cornell University Law School Legal Information Institute

Disqualification: Overview of Bankruptcy – Chapter 13 and Why to File, Part 1

February 27, 2014 by TomScottLaw

Series: #6 0f 13
In our previous article, we took an overview of Chapter 7 bankruptcy, and how it is handled in Indiana, an “opt out” state where residents take exemptions found under state law. In this installment, we will discuss why a debtor may not be eligible to file for a Chapter 7. Future articles will look at other reasons to file a Chapter 13 rather than a Chapter 7 Bankruptcy.

What is Chapter 13 Bankruptcy?

As mentioned in the last post, Chapter 13 is commonly described as the “adjustment of debts of an individual with regular income” or a reorganization of one’s finances through a plan approved by the court. Three key components to a Chapter 13 plan are eligibility (whether a debtor is entitled to file a Chapter 13 under the limitations set forth in Section 109(e)), feasibility (whether a debtor can fund a payment plan which complies with Section 1322 and 1325), and good faith (as set forth in Section 1325 – Confirmation of plan*(a)(3)).
Per 11 U.S.C. Sec. 109*(e), there are limitations as to how much debt an individual having regular income can have to be eligible for Chapter 13.
Except for a stockbroker or a commodity broker, and individual and his spouse may have up to $336,900.00 of noncontingent, liquidated unsecured debt and non-contingent, liquidated, secured debts up to $1,010,650.00. [NOTE: These figures will adjust up to $360,475.00 and $1,081,400.00 respectively in April 2010.]

Why file a Chapter 13? You may not qualify for Chapter 7 Relief.

The debtor is not eligible to receive a Chapter 7 discharge. As discussed briefly above, a debtor may not receive a discharge of debts under Chapter 7 of the Bankruptcy Code if the debtor has received a discharge in Chapter 7 or 11 in a case commenced within eight years before the date of filing the petition.In addition, a debtor may not receive a discharge of debts under Chapter 7 of the Bankruptcy Code if the debtor has received a discharge in Chapter 12 or 13 in a case commenced within six years before the date of filing the petition. See 11 U.S.C. §§ 727 – Discharge*. Maybe the first question to ask the debtor is whether she has ever filed for bankruptcy before.The attorney should also review the Public Access to Court Electronic Records (PACER) for information on previous filing dates and whether the debtor received a discharge or whether the case was dismissed.
Filing Chapter 7 would be abusive to Chapter 7 provisions. In a nutshell:
- If the debtor’s average “current monthly income” minus expenses reasonable and necessary (as defined by 11 USC § 707*(b)(2)(a)(i)-(iii)) leaves less than $6,575.00 ($109.00 per month), then there is no automatic presumption of abuse.
- If the resulting figure leaves more than $10,950.00 ($182.50 per month) then there is an automatic presumption of abuse. If the resulting figure is anywhere between the two numbers, then there is a presumption of abuse if that figure would pay at least 25% of the non-priority unsecured claims (if the debtor has more debt, then there is less likelihood of abuse!). Note that the figures increase every three years on April 1.
- The next adjustment is April 1, 2010. According to the Federal Register, Volume 75, Number 37 (February 25, 2010) the increased figures will be $7025.00 ($117.08 per month) for no abuse and $11,725 ($195.41 per month) for presumption of abuse.
[We are not going to try and explain the provisions of the Section 707(b) means test in the limited space of this article because a reasonable explanation would likely take pages. Entire seminars have been given on the means test requirements, and Section 707(b) is very likely the section that has created the most litigation across the country. For more information on the topic, read 11 USC § 707 – Dismissal of a case or conversion to a case under chapter 11 or 13*.]

Next: Curing a Mortgage: Overview of Bankruptcy – Chapter 13 and Why to File, Part 2

* Source: Cornell University Law School Legal Information Institute

Chapter 7 Overview: Deciding on Which Bankruptcy to File

February 5, 2014 by TomScottLaw

Series: #5 of 13
As briefly mentioned in our previous article, “Initial Interview: Chapters 7 and 13 Bankruptcies – Deciding Which Chapter to File,” the goal of bankruptcy (regardless of the chapter) is to attempt to get some money for the general unsecured creditors in exchange for certain debts being discharged. The difference between a Chapter 7 and Chapter 13 bankruptcy, then, is how the court finds money.

What is Chapter 7 Bankruptcy?

A Chapter 7 bankruptcy is a “liquidation” in which the debtor truly and honestly lists all assets and allows the court to determine if any assets are valuable enough to sell and help pay down the debt. The Code allows individual states to claim the Federal exemptions enumerated at 11 U.S.C. § 522¹ or opt out of the Federal exemptions and take state exemptions. Chapter 13 is commonly described as the “adjustment of debts of an individual with regular income” or a reorganization of one’s finances through a plan approved by the court.
Indiana is an “opt out” state and Indiana residents take exemptions found under state law. The majority of exemptions may be found in the Indiana Code at IC 34-55-10-2(c)² and are generally broken down into four categories (which increased on March 1, 2010):

Real estate or personal property constituting the personal or family residence of the debtor or a dependent of the debtor, or estates or rights in that real estate or personal property, of not more than $17,600.00. The exemption under this subdivision is individually available to joint debtors concerning property held by them as tenants by the entireties
Other real estate or tangible personal property of $9,350.00
Intangible personal property, including chooses in action, deposit accounts, and cash (but excluding debts owing and income owing), of $350.00
An interest, whether vested or not, that the debtor has in a retirement plan or fund to the extent of contributions, or portions of contributions, that were made to the retirement plan or fund by or on behalf of the debtor or the debtor’s spouse which were not subject to federal income taxation to the debtor at the time of the contribution, or which are made to an individual retirement account in the manner prescribed by Section 408A of the Internal Revenue Code¹ of 1986.

Any attorney acting as debtor’s counsel should be fully cognizant of all available exemptions available for debtors.
Further, debtors should be aware whether their case will likely be an asset case or not as soon as it is known, but certainly prior to the filing of the case.
Finally, debtors should be advised that filing of the bankruptcy creates a bankruptcy estate (see 11 U.S.C. § 541 – Property of the Estate¹) which includes almost everything, and that they must not dispose of estate property until abandoned by the Chapter 7 trustee. Attorneys should also become familiar with 11 U.S.C. § 523 – Exceptions to discharge¹ which details those debts which will not be dischargeable in a Chapter 7 case and advise debtors accordingly.
Not all debtors are eligible for a Chapter 7 bankruptcy and must file a Chapter 13 to receive the Section 362 automatic stay and subsequent discharge.
Chapter 13 is commonly described as the “adjustment of debts of an individual with regular income” or a reorganization of one’s finances through a plan approved by the court.
In addition to not being qualified for Chapter 7 (or other chapters,) there are numerous reasons for a debtor to choose to file Chapter 13. In our next installment, we will begin a closer look at the primary reasons why to file a Chapter 13 rather than a Chapter 7 bankruptcy.
Next: Chapter 13 and Why to File, Part 1 – Disqualification

Sources: (links open in new windows)
1. Cornell University Law School Legal Information Institute
2. State of Indiana Constitution on IN.gov

Initial Interview for Chapters 7 and 13: Bankruptcy Overview – Deciding Which Chapter to File

January 13, 2014 by TomScottLaw

Series: #4 0f 13
In previous articles of this series, we have discussed those sections of the Bankruptcy Code related to Debt Relief Agencies: section 526, restrictions on debt relief agencies and section 527 – disclosures, and section 528 – requirements for debt relief agencies. The next few posts will talk about some of the differences between Chapter 7 and Chapter 13 bankruptcies, and why a debtor would use one versus the other, beginning with deciding on which chapter to file.

Initial Interview / Deciding on which Chapter to File

Most debtors who walk into your office only know about Chapter 7 bankruptcy and have some common misconceptions about how a Chapter 7 works, how it differs from a Chapter 13 bankruptcy, and how much paperwork they will need to provide to properly prepare and advise the Chapter 7 trustee and the court. Many debtors incorrectly believe that Chapter 7 is a simple process available to all persons and simply allows the debtor to discharge debts. However, these ideas are incorrect and oftentimes misunderstood.
Very generally speaking, all persons who reside, have a place of business, or own property in the United States may file for bankruptcy in a federal court under Chapter 7 (“straight bankruptcy”, or liquidation) except for railroads, insurance companies, and certain banking institutions. However the debtor is not eligible for a Chapter 7 discharge if the debtor has received a Chapter 7 discharge in the prior eight years or a Chapter 13 discharge in the prior six years unless the plan paid at least 70% of claims and was proposed in good faith (See 11 U.S.C. Section 727*(a)(8)-(9)).
In addition a debtor may not be qualified to file a Chapter 7 if filing the Chapter 7 would be an abuse of the Chapter 7 provisions. To get debtors in the right “mindset” I start every initial interview advising that there is no “free ride” in any chapter of bankruptcy and that the goal of bankruptcy (regardless of the chapter) is to attempt to get some money for the general unsecured creditors in exchange for certain debts being discharged.
Next: Chapter 7 Overview: Deciding on Which Bankruptcy to File

* Source: Cornell University Law School Legal Information Institute

Disclosure / Requirements for Debt Relief Agency: Section 527 / Section 528, Overview of Chapter 13 Bankruptcy

December 6, 2013 by TomScottLaw

Series: #3 0f 13
In our previous article of our series, “Restrictions on Debt Relief Agencies: Overview of Bankruptcy: Chapter 13, Section 526“, we looked at the requirements of debt relief agents in terms of the services they provide, and to clarify a few of the issues involved. This time, we take a look at details of sections 527 and 528, which describe both what types of information a debt relief agent is required to disclose to the debtor, and when, including clearly written contracts and fees for service.

Chapter 13; Section 527: Disclosures

Section 527 (titled “Disclosures”) appears clear on its face, but is very tricky to follow in certain circumstances. It requires a debt relief agency to provide very specific written notices to the assisted person “not later than 3 business days after the first date on which a debt relief agency first offers to provide any bankruptcy assistance services to an assisted person.”
Generally the first time an attorney will offer to provide assistance will be on the date that the assisted person calls into the law office (a.k.a. “the debt relief agency”). How is the attorney able to comply with the very strict deadlines if the attorney is unable to meet with the person within the following 3 business days? What happens if a meeting is scheduled within the following 3 business days, but the assisted person fails to attend the meeting? Should an attorney send the notice requirements through US Mail, first-class postage prepaid every time any debtor contacts your office for potential assistance? The notice requirements include the Bankruptcy Court Clerk’s notice under Section 342(b)(1) and the specific notice listed in Section 527. If a debt relief agency does not itself complete the petition schedules and statement of financial affairs, the debt relief agency must provide the specified information to the assisted person regarding how to provide all the information required in Section 521*.

Chapter 13; Section 528: Requirements for Debt Relief Agencies

Section 528* has the final list of requirements with which the attorney may or may not be able to comply.
The first such requirement is that the debt relief agency must execute a written contract which clearly and conspicuously explains the services that will be provided and the fees that will be charged; and that the DRA provide a “fully executed” completed contract to the assisted person.
The difficulty with this requirement is that the contract must be fully executed “not later than 5 business days after the first date on which such agency provides any bankruptcy assistance services to an assisted person, but prior to such assisted person’s petition under this title being filed.” The presumption might be that the five business day requirement starts after the debtor has actually agreed to retain the law office, but that is not what the statute says.
The term “any bankruptcy assistance services” could be interpreted to mean advice on the bankruptcy chapters in general and the risk and benefits of filing. The statute requires then that the fees be disclosed oftentimes before the attorney knows what bankruptcy chapter the debtor is filing or complex facts which the debtor may not have disclosed at the time the first assistance was provided. In addition, a strict reading of the statute required the assisted person to execute the contract within 5 business days or else that person may not be a client.
FINALLY, 11 U.S.C. § 528(a)(3) requires the debt relief agency to clearly and conspicuously disclose in any advertisement of bankruptcy services or of the benefits of bankruptcy directed to the general public (whether in general media, seminars or specific mailings, telephonic or electronic messages, or otherwise) that the services or benefits are with respect to bankruptcy relief and clearly and conspicuously use the following statement in such advertisement: “We are a debt relief agency. We help people file for bankruptcy under the Bankruptcy Code.” As the Code fails to describe “advertisement,” my seminar may discuss benefits of filing for bankruptcy, and these seminar materials may fall into the hands of the general public, I have used the requisite language at the beginning of this materials. Have all the other debt relief agents?
Next: Chapters 7 and 13 – Initial Interview and Deciding Which Chapter to Use

* Source: Cornell University Law School Legal Information Institute

Restrictions on Debt Relief Agencies: Overview of Bankruptcy: Chapter 13, Section 526

November 25, 2013 by TomScottLaw

Series: #2 0f 13
As we mentioned in the first article of this series, “Chapter 7 and Chapter 13 Bankruptcy Code Overview: Introduction to Sections 526, 527 & 528“, Section 526 requires (among other things) debt relief agents to provide all services promised; properly advise the assisted person on benefits and risks associated with filing bankruptcy; refrain from advising assisted persons to make untrue or misleading statements; and may not advise the assisted person to incur more debt in contemplation of filing bankruptcy. While these issues seem clear and unambiguous on first reading, a closer understanding of this section shows the potential risks.
For example, is taking a retirement loan “incurring debt”? It would appear so as 11 U.S.C. § (12) defines “debt” as a “liability on a claim.” But see 11 U.S.C. § 362(b)(19)¹ which states that there is no automatic stay in place for the withholding and collection of a retirement loan and that “nothing in this paragraph may be construed to provide that any loan made under a governmental plan under section 414(d), or a contract or account under section 403(b), of the Internal Revenue Code of 1986¹ constitutes a claim or debt under this title.” What advise can you give a debtor who needs a vehicle and asks you if it is advisable to purchase the vehicle prior to filing? Should an attorney stay silent in this regard?
Many of these questions were answered on March 8, 2010 by the United States Supreme Court in the case, Milavetz, Gallop & Milavetz, P.A. v. United States, 559 U.S. _____ (2010)² on Writs of Certiorari to the United States Court of Appeals for the 8th Circuit. Justice Sotomayor delivered the Court’s opinion which held three tenants:
1) Attorneys who provide bankruptcy assistance to assisted persons are debt relief agents (“DRAs”) under BAPCPA. Milavetz relied on the fact that 11 U.S.C. § 101(12)(A)¹ does not specifically include attorneys. The Justices brushed that issue aside easily stating that the only other group it would apply to would be petition preparers.
However, the definition includes both “any person” who provides bankruptcy assistance to an assisted person or who is a “bankruptcy petition preparer”. Accordingly the only “person” referred to would include attorneys;
2) Section 526(a)(4)¹ prohibits a DRA from advising a debtor to incur more debt because the debtor is filing for bankruptcy, rather than for a valid purpose. The controlling question is whether the thought of bankruptcy was the impelling cause of the transaction. The DRA would be prohibited from advising the debtor to “load up” on debt with the expectation that debt would simply be discharged in bankruptcy. Does that answer the question?
What if a debtor, after completing the means test (Form B22) has disposable income available only because the debtor has no vehicle and would thus not qualify for a Chapter 7? Can the DRA advise the debtor to “load up” on an automobile payment for the purpose of qualifying for a Chapter 7?
3) Finally, the Court held that the notice requirements of Section 528 are valid and do not violate the First Amendment as the disclosure requirements are not unduly burdensome and are reasonably related to the government’s interest in preventing deception of consumers. Without such disclosures, consumers may believe that they are obtaining simple debt relief without the reference to the potential for filing bankruptcy which has inherent costs to consumers.
Section 526 continues by stating that any contract that does not comply with Sections 527 and 528 are void and may not be enforced by any person other than the assisted person. Further, a debt relief agent is liable for fees and charges paid for failure to comply with Sections 526-528.
Most importantly, Section 526 states that if the court, on its own motion or motion of the United States trustee or the debtor, finds that a person intentionally violated this section, or engaged in a pattern of violating this section, the court may enjoin the violation and impose a civil penalty on the debt relief agent. In other words, despite the “clarity” provided by the Supreme Court, the DRA must be cautious as to any advice regarding incurring debt prior to filing.
Next: Disclosure / Requirements for Debt Relief Agency: Section 527 / Section 528, Overview of Chapter 13 Bankruptcy

Sources:
(links open in new windows)
1. Cornell University Law School Legal Information Institute
2. United States Supreme Court

Chapter 7 and Chapter 13 Bankruptcy Code Overview: Introduction to Sections 526, 527 & 528

November 11, 2013 by TomScottLaw

Series: #1 0f 13
This series of articles will take a look at the three sections of the bankruptcy code related to debt relief agents, sections 526, 527 and 528, and the requirements and responsibilities they impose on attorneys that act as a debt relief agency. We will then take an in-depth look at primary reasons why filing Chapter 13 rather than Chapter 7 bankruptcy may be the better (or the only) option for your client.
Pursuant to 11 U.S.C. § 101(12A), a “debt relief agency” means any person who provides any bankruptcy assistance to an assisted person in return for the payment of money or other valuable consideration. Accordingly, if the attorney charges any fees whatsoever or receives any other valuable consideration in the area of bankruptcy assistance, that attorney is a “debt relief agent” and must comply with the requirements of Sections 526, 527 and 528.
Future articles in this overview of bankruptcy will discuss:

Chapter 13; Section 526: Debt Relief Agent Requirements

Section 526 requires (among other things) debt relief agents to:

Provide all services promised
Properly advise the assisted person on benefits and risks associated with filing bankruptcy
Refrain from advising assisted persons to make untrue or misleading statements
Not advise the assisted person to incur more debt in contemplation of filing bankruptcy

While these issues seem clear and unambiguous on first reading, a closer understanding of this section shows the potential risks. We will take a more in-depth look at Section 526 in our next post.

Chapter 13; Section 527: Disclosure

Basically, Section 527 requires a debt relief agency to provide very specific written notices to the assisted person “not later than 3 business days after the first date on which a debt relief agency first offers to provide any bankruptcy assistance services to an assisted person.” While this may appear clear on its face, it can be very tricky to follow in certain circumstances.

Chapter 13; Section 528: Compliance

Section 528 has the final list of requirements with which the attorney may or may not be able to comply. We will go into more details about both Sections 257 and 258 in the third article of the series.

Initial Interview & Deciding Which Chapter to Use

* Source: Cornell University Law School Legal Information Institute

Liquidating Tax Debt / Protecting Co-Debtors: Basics of Bankruptcy – Chapter 13 vs. Chapter 7 – Part 4

November 3, 2013 by TomScottLaw

The previous installment of our series “Basics of Bankruptcy” discussed some of the reasons to file a Chapter 13 bankruptcy vs. Chapter 7 as they relate to cars and other personal collateral. This last installment looks at reasons why Chapter 13 might be the better choice for personal bankruptcy than Chapter 7 when it comes to liquidating tax debt and protecting co-debtors.

Liquidating Tax Debts

Summary: Chapter 13 is an effective tool for liquidating large tax and other obligations, as it can provide the debtor with more time than a non-bankruptcy setting would allow.
A chapter 13 is a very effective tool for liquidating large tax and other priority obligations, as it sometimes provides the debtor with more time than a non-bankruptcy setting would allow.

Generally, we see large income and trust fund taxes paid through the plan, and in the last few years, child support cures have become more common.
Also, if the debtor is self-employed, part of the confirmation order may include the requirement that the debtor make regular ongoing monthly estimated tax payments to the IRS.
If this becomes part of a confirmation order and is later breached, the IRS can move for dismissal for breach of the order.

a) Secured tax claims: A tax liability is secured to the extent that the debtor has equity in property if the taxing agency has filed a lien in the debtor’s county of residence.

One should always verify that the lien was recorded in the correct county.
In determining the amount of the secured claim, the equity that the debtor lists in schedules A and B is totaled.

Special note: the IRS asserts that their claims are also secured to the extent that the debtor has any interest in a retirement fund or a 401k, even though this is an asset that is generally excluded from, or exempted out of the bankruptcy estate. See In re Wesche, 193 B.R. 76 (Bankr. M.D. Fla. 1996) stating that federal tax lien attaches to all interests in pension, not just current benefits.
This is very important because if the debtor has a retirement fund, the IRS secured claim that may have appeared to be minimal based on the equity in personal property can become unmanageable, even in a 13. To the extent that the secured claim extends beyond the equity available to support it, the balance will fall to priority or general under the §507(a)(8)^* analysis. Also remember, that the equity is applied to oldest liabilities first.
Secured real estate taxes are paid through the plan. Generally only the pre-petition amount due is paid, but if the next semi-annual installment is due shortly, and the taxing agency agrees, that post-petition obligation may also be included. Real estate taxes are paid with interest of 8%.
b) Priority tax claims: Again, taxes are prioritized in §507(a)(8), but briefly they include income taxes due within the prior three years, trust fund taxes and some personal property taxes. One thing to be aware of in determining the priority afforded personal income tax liabilities is the term of art “tolling”, which has now been codified at the end of §507(a)(8).
Tolling is a rule that provides that any time spent in a prior bankruptcy (any chapter) or when the government unit was prohibited from collecting a tax under applicable non-bankruptcy law will extend the reach back period for pulling tax years into priority status; an additional 90 days is added to time period.
Tolling applies only to pre-petition debt, but you need to be aware of any previous bankruptcies, as it can be a rude surprise to find that taxes due in 2003 retain their priority status in a 2009 filing.
As an example: The debtor previously filed a chapter 13 bankruptcy in April, 2004. In this bankruptcy, 2002 taxes (due April 15, 2003) are priority under §507(a)(8)(A)(i) due three years before the date of the filing of the petition.

If the 2004 bankruptcy was dismissed in April 2007 (the debtor was in the bankruptcy for 36 months). So, taxes originally due April 15, 2003 would retain priority status for three years, plus three years that the debtor was in the bankruptcy plus an additional 90 days.
Starting from the due date of April 15, 2003 the 2002 tax year retains priority status until July 16, 2009! So, a bankruptcy filed anytime before July 16, 2009 will pull the 2002 debt into priority status.
Furthermore, if the debtor asked for an extension until October 15, 2003, theses tax debts would be a priority claim until January 16, 2010. These facts may be confusing, but remain extremely important.
Other priority taxes that must be fully paid inside the plan include trust fund taxes (that portion that the employer withheld but did not remit to the taxing agency), and personal property taxes due within one year prior to the current bankruptcy filing.

A word about trust fund taxes — they are attributable to the responsible party of the employer. This determination is made by the IRS.
c) General unsecured taxes: ”Stale taxes”, those that are older than three years, and the penalty portion of priority taxes are general unsecured liabilities and are paid with the pro rata distribution afforded to other general creditors.

Protecting a Co-debtor

11 U.S.C. Section 1301^* is otherwise known as the “co-debtor stay”, and prevents a creditor from pursuing a co-debtor on a consumer debt. In order to prevent the creditor from seeking relief from stay, the Debtor must propose in his or her Chapter 13 plan to pay the co-signed debt in full. There is no equivalent provision in Chapter 11 or Chapter 7.

* Source: Cornell University Law School Legal Information Institute (opens in new windows)