In re Moseley
| Decision Date | 29 May 1987 |
| Docket Number | Bankruptcy No. LAX 84-08358 SB. |
| Court | United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — Central District of California |
| Parties | In re Patricia S. MOSELEY, Debtor. |
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Thomas Davis of Ronald M. Stark & Associates, Norwalk, Cal., for debtor.
Robert S. Horwitz, Asst. U.S. Atty., Washington, D.C., for I.R.S.
The Internal Revenue Service ("IRS") brings this motion to allow its unsecured claim for the full amount of $18,131.74, instead of a much smaller sum provided in the debtor's confirmed Chapter 13 plan, and to modify the plan to provide for payment of the larger amount. The debtor has filed an application to amend her plan to delete the amount provided for the IRS, and to pay it nothing.
This motion raises the issue of whether and to what extent an untimely IRS priority claim in a Chapter 13 case is barred after the order confirming the Chapter 13 plan has become final, where no notice of a bar date or of the first meeting of creditors was given to the IRS, but where the plan (which included notice of the date and time of the confirmation hearing) was timely served on the IRS.
In this case the first amended Chapter 13 plan was served on the IRS two months before its confirmation. The IRS did not object to the plan, and did not file its claim until 428 days after the first meeting of creditors, and a year and three days after the final confirmation hearing.
The Court holds that the additional IRS claim is barred by the confirmation order, and that it must be disallowed. The amount provided in the plan for taxes, including those owing to the IRS, is binding on the IRS. However, the failure to give notice of the bar date permits the IRS to prove its claim, up to the amount provided for priority taxes in the confirmed plan: The plan is binding on the debtor (as well as creditors), and the provision for payment to the IRS may not be deleted.
Patricia S. Moseley filed this case under Chapter 7 of the Bankruptcy Code on April 18, 1984. On June 6, 1984 an order was entered converting the case to one under Chapter 13 of the Bankruptcy Code. The Chapter 13 plan was confirmed at a hearing on October 22, 1984, and the order confirming the plan was entered on October 29, 1984.
With her original petition (which was filed before the debtor obtained counsel in this case) the debtor filed an unsigned partial schedule of liabilities, which showed that she owed $9,000 to the IRS for unspecified taxes. The original Chapter 13 statement, filed on July 23, 1984, indicated that she owed priority taxes in the amount of $17,549, including taxes owing to the IRS in the amount of $13,883, which the plan proposed to pay over a period of 35 months. On August 22, 1984 the debtor filed her first amended plan, which provided only $3,323 for priority taxes (including taxes owing to the IRS), which were to be paid over the first 17 months of the 60-month plan. The plan did not specify which taxing authorities were to be paid, or how much of the $3,323 each was to receive. An amended statement filed at the same time (but not served on creditors) indicated that the debtor owed only $1,000 in priority taxes to the IRS.
The IRS claim arises out of the debtor's operation of Sleepy's Radio, an electronics repair business that the debtor owned as a sole proprietorship. The IRS claim is based principally upon employment taxes owing for 1983 and the last quarter of 1982, and includes pre-petition interest in the amount of $1,740.25 and penalties in the amount of $4,572.20. The debtor filed her employment tax return for 1983 on September 27, 1984, and the IRS assessed the 1983 taxes on November 19, 1984.
At the time of the filing of the original Chapter 7 case, the IRS was listed as a creditor on the mailing matrix, but no mailing address was provided for it. In consequence, the IRS was not given notice of the first meeting of creditors for the Chapter 7 case, which was set for May 27, 1984. Following the conversion to a case under Chapter 13, the clerk's office served notice of a new first meeting of creditors, set for August 23, 1984, and of the plan confirmation hearing on September 4, 1984. The notice stated that claims must be filed within 90 days after the August 23, 1984 first meeting of creditors. This notice was likewise not served on the IRS.
The IRS was apparently given its first notice of the filing of this case when the first amended plan was served on its Special Procedures Section office in Los Angeles, California on August 21, 1984. This plan gave notice of the September 4, 1984 plan confirmation hearing date. Neither the original Chapter 13 statement nor the first amended statement was served on the IRS. The IRS did not file any objection to the plan, and apparently did not attend the confirmation hearing.
The IRS received additional notice of this case in connection with an order to show cause for contempt, which resulted from a post-petition levy by the IRS on the bank account of Sleepy's Radio in violation of the automatic stay. The debtor filed the original application for an order to show cause on July 20, 1984, and it was set for hearing on August 7, 1984. The Court took no action on the application on August 7, apparently because of lack of service on the IRS. The debtor filed a new application for an order to show cause on August 23, 1984, and served it by mail on the IRS on August 22, 1984. The Court issued the order to show cause on September 10, 1984, and set it for hearing on October 1, 1984. The IRS responded by terminating the garnishment, and on November 5, 1984 the IRS transmitted to the debtor a refund check in the amount of $421.20, representing the levy proceeds plus interest. While the check was not transmitted until November, the IRS agreed to terminate the levy and to transmit the funds prior to the October 1, 1984 hearing on the order to show cause.
The confirmation hearing was continued from September 4, 1984 to October 22, 1984, apparently to allow additional time for creditors to file objections to the Chapter 13 plan. The first amended plan was confirmed on October 22, and the confirmation order was entered on October 29, 1984. The order became final when no timely appeal was taken. The plan provided for payments of $567.41 per month for 60 months.
The IRS filed its proof of claim on October 25, 1985 in the amount of $18,131.74. The IRS has offered no explanation for its failure to file its claim earlier, or for its failure to object to the first amended plan. The debtor objected to the claim, and the IRS replied that the claim should be allowed because of lack of notice of the bar date. The Court sustained the objection by order entered October 15, 1986.
The IRS subsequently brought a motion pursuant to Bankruptcy Code § 502(j)1 and Bankruptcy Rule 30082 to allow the claim and to modify the plan. The Court treats the motion as a timely motion to reconsider the order sustaining the objection.
The debtor filed her second amended plan and moved its confirmation on September 15, 1986. The second amended plan proposes a reduction of the plan payments to $290.65 per month, for 30 months from the date of amendment. It provides for the payment of $519.33 in unspecified priority tax claims. The changes in the second amended plan result from two factors: (1) loss of the debtor's real property through foreclosure after relief from stay; (2) failure of a number of creditors, including the IRS, to file timely claims. Although no objections to the second amended plan have been filed, the Court has not confirmed it as of yet.
The IRS contends that its claim should be allowed in full because it was not given notice of the bar date for filing proofs of claim, and the debtor did not file her 1983 tax returns until shortly before the bar date. Without the tax returns, the IRS contends that it was unable to determine the amount of taxes owing by the debtor. In addition, the IRS contends that the debtor purposely misled the Court in reducing the amount of the federal taxes to be paid through the confirmed plan.
The debtor opposes the allowance of the increased IRS claim, on the grounds (1) that the last day for filing claims is set by rule and not court order, and that the rule provides the required notice of the bar date; (2) that the IRS should have either filed an estimated claim or sought an extension of time to file its claim. The debtor offers no opposition on the merits of the IRS claim.
The automatic stay set forth in Bankruptcy Code § 362(a), 11 U.S.C. § 362(a) (1979 & Supp.1987), is "one of the fundamental debtor protections provided by the bankruptcy laws." Midlantic National Bank v. New Jersey Department of Environmental Protection, 474 U.S. 494, 106 S.Ct. 755, 760-761, 88 L.Ed.2d 859 (1986). It prohibits the IRS from enforcing its tax claim against the debtor so long as the case is pending.3 Thus the IRS may pursue its claim against the debtor only to the extent that the debtor's confirmed Chapter 13 plan provides for payment to it.
When a Chapter 13 plan is confirmed, the consequences are set forth in Bankruptcy Code § 1327(a) 11 U.S.C. 1327(a):
The provisions of a confirmed plan bind the debtor and each creditor, whether or not the claim of such creditor is provided for by the plan, and whether or not such creditor has objected to, has accepted, or has rejected the plan.
See, also, Anaheim Savings & Loan Association v. Evans (In re Evans), 30 B.R. 530 (Bankr. 9th Cir.1983); Los Angeles Title & Trust Deed v. Risser (In re Risser), 22 B.R. 868 (Bankr. S.D.Cal.1982); cf. Bankruptcy Code § 1141(a), 11 U.S.C. § 1141(a)(1979 & Supp.1987) (similar provision for Chapter 11 plans).
This case raises the general question of the treatment of priority claims in a Chapter 13 plan. Priority Chapter 13 claims are governed by ...
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