{"id":5578,"date":"2012-10-30T09:00:20","date_gmt":"2012-10-30T09:00:20","guid":{"rendered":"http:\/\/www.duncanlawonline.com\/?p=5578"},"modified":"2026-06-08T12:39:14","modified_gmt":"2026-06-08T16:39:14","slug":"what-happens-if-i-owe-taxes-while-in-a-chapter-13-bankruptcy","status":"publish","type":"post","link":"https:\/\/www.duncanlawonline.com\/staging\/8350\/what-happens-if-i-owe-taxes-while-in-a-chapter-13-bankruptcy\/","title":{"rendered":"What Happens If I Owe Taxes While In A Chapter 13 Bankruptcy?"},"content":{"rendered":"
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Filing for bankruptcy is already stressful. Then tax season rolls around, and you learn you owe money to the IRS or the State of North Carolina. If you are in the middle of a Chapter 13 bankruptcy, this can feel scary. You may worry that owing new taxes will ruin your case or get it thrown out.<\/p>\n

Take a deep breath. Owing taxes during a Chapter 13 plan is common, and there are clear ways to handle it. This article explains what usually happens, how it can change your payment, and the simple steps you can take to stay on track.<\/p>\n

The Short Answer<\/h2>\n

If you owe taxes during a Chapter 13 bankruptcy, you usually will not lose your case right away. The IRS or the North Carolina Department of Revenue may file a proof of claim. That is a legal paper that tells the court how much you owe.<\/p>\n

Your plan payment may go up to make room for that tax debt, because most recent income taxes must be paid in full in Chapter 13. Your attorney and the Chapter 13 Trustee will often work together to adjust your plan. The best fix is to correct your tax withholding so you stop owing new taxes each year.<\/p>\n

What Happens When You Owe Taxes During Chapter 13<\/h2>\n

A Chapter 13 bankruptcy<\/a> lasts three to five years. That is a long time. A lot can happen during those years, including owing new taxes.<\/p>\n

When you owe taxes, here is what usually happens:<\/p>\n

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  1. The taxing agency files a proof of claim.<\/strong> This is a legal document that tells the court how much you owe. The IRS or the state files it with the bankruptcy court.<\/li>\n
  2. The Trustee reviews your plan.<\/strong> The Chapter 13 Trustee manages your case and collects your payments. The Trustee makes sure your creditors get paid the right way.<\/li>\n
  3. Your payment may need to change.<\/strong> Many tax debts are "priority" debts. Under the Bankruptcy Code, priority taxes generally must be paid in full through your plan. See 11 U.S.C. \u00a7 1322(a)(2).<\/li>\n<\/ol>\n

    How much your payment goes up depends on how much you owe and how much time is left in your plan.<\/p>\n

    Why Most Taxes Get Paid in Full<\/h2>\n

    Not all debts are treated the same in Chapter 13. Some debts, like old credit card bills, may only get paid in part. Many tax debts are different.<\/p>\n

    Recent income taxes are often treated as priority debts<\/strong>. That means they sit near the front of the line and usually get paid in full during your plan. This is true even when other unsecured creditors only get a small share.<\/p>\n

    A few older income taxes may qualify to be treated like regular unsecured debt. The rules for this are detailed and depend on specific dates. A bankruptcy attorney can review the timing and details of your tax debt to see how it should be handled.<\/p>\n

    How New Taxes Can Affect Your Plan<\/h2>\n

    Let's look at a simple example.<\/p>\n

    Say your Chapter 13 plan is set at $400 a month. You finish your tax return and learn you owe the IRS $3,000. The IRS files a proof of claim for that amount.<\/p>\n

    Because that tax is a priority debt, it must be paid through your plan. The Trustee may ask the court to raise your payment so the $3,000 gets paid before your case ends. Your payment might go from $400 to a higher amount to cover the new debt over the remaining months.<\/p>\n

    This is why owing new taxes year after year can be a problem. Each new tax bill can push your payment higher. At some point, the payment could become more than you can afford.<\/p>\n

    The Smart Move: Fix Your Tax Withholding<\/h2>\n

    Here is the best advice for anyone in a Chapter 13 plan. Try to break even on your taxes each year. That means two things:<\/p>\n