- United States Bankruptcy Appellate Panel for the First Circuit, No. MB 12084 (Sept. 19, 2013)
- Reversing the ruling of the bankruptcy court, the BAP determined that confirmation of a Chapter 13 plan (the "Plan") which fails to address the payment of post-petition interest on non-dischargeable priority tax debt does not deprive the IRS of the right to pursue such interest after entry of the discharge order, despite the lack of any objection by the IRS at any prior time in the case. The opinion is based on the following principles: (i) based on sec. 502, allowed unsecured claims do not include post-petition interest; (ii) absent one exception not present here, a Chapter 13 plan can only provide for allowed claims; (iii) based on sec. 1328, the ultimate discharge only affects debts provided for by the plan, subject to an exception for taxes made non-dischargeable under sec. 507(a)(8)(C), relevant here; (iv) based on Bruning v. United States, 376 U.S. 358 (1964), a debtor remains personally liable for any unpaid portion of a non-dischargeable tax claim, including the post-petition interest that could not have been part of the allowed claim; and, (v) while United Student Aid Funds, Inc. v. Espinosa, 599 U.S. 260 (2010) ("Espinosa"), does hold that the IRS would have been bound by a plan that explicitly sought to discharge the post-petition interest, even if in violation of the Code, had it received adequate notice and not objected, the Plan here did not provide for that result upon completion of the plan payments.
- Procedural context:
- Appeal from the United States Bankruptcy Court for the District of Massachusetts of an order granting a Chapter 13 debtor's motion for determination of a violation of the discharge injunction and request for protective order (the "Determination Motion").
- The Debtor filed a Chapter 13 case and achieved, without objection, confirmation of the Plan, which proposed payment of certain pre-petition non-dischargeable tax liability (the "Tax Debt") in full over the life of the Plan. The Plan did not address post-petition interest in any way. After full payment, the Debtor obtained a discharge order without objection, following which the IRS sent her levy notices, seeking post-petition interest on the Tax Debt. In response, the Debtor filed the Determination Motion, contending that the IRS was bound by the confirmation order and could collect nothing further. The bankruptcy judge allowed the motion, stating that the IRS got what it had asked for in its proof of claim and was bound by fundamental fairness and the Espinosa case. The IRS appealed.
- Haines, Deasy and Godoy
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