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Fighting for the Little Guy in Portland & Beyond

How Bankruptcy Handles Income Taxes that Your Ex-Spouse Was Required to Pay but Is Now Handling through a Chapter 13 Case

What can you do if your ex-spouse is dealing with the tax authorities through a Chapter 13 bankruptcy?

What if your ex-spouse was ordered in your divorce decree to pay your joint income taxes, but isn’t paying. And now that he or she has filed a Chapter 13 “adjustment of debts” case, where does that leave you?

Where that leaves you depends on what kind of income tax you owe and how Chapter 13 treats that tax.

We’ll get to that in a minute. But let’s first get a couple things straight.

First, the Divorce Decree Did Not Get Rid of Your Legal Obligation to Pay the Taxes

As we explained a couple times in earlier blog posts in this series:

the divorce court’s decree ordering your ex-spouse to pay the taxes has no effect on your own legal obligation to the IRS/state. … . So if your ex-spouse does not pay it, the IRS/state will try to make you pay it all.

Second, Your Ex-Spouse’s Chapter 13 Filing Has Little or No Effect on Your Obligation

Two points to make here:

  • The “co-debtor stay” of your ex-spouse’s Chapter 13 case would normally give you some protection from a creditor on a joint debt. But that protection does not apply in the case of tax debts. So when your ex-spouse enters into a Chapter 13 case, that doesn’t do anything to keep the IRS or state tax collector off your back. It may even inspire them to chase you harder. That’s because your ex-spouse’s Chapter 13 case legally significantly limits the IRS/state from chasing your ex-spouse.

  • To the extent that any part of your ex-spouse’s tax obligation to the IRS/state is “discharged”—legally written off—through his or her Chapter 13 case, NONE of your own tax obligation will be “discharged.” And since they can’t chase him or her ever again for that part that was “discharged,” guess who they will chase instead? Yes, the only other person left legally liable to pay the tax: you.

And all of this is true in spite of the fact that the divorce judge had ordered your ex-spouse to pay the tax debt, leaving you probably thinking that you would not have to pay it.

Some Income Tax Debts Can’t Be “Discharged” under Chapter 13 and Some Can

If the situation looks bleak at this point, it may be better than it looks. Remember a few paragraphs ago we said that the effect of your ex-spouse’s Chapter 13 filing depends on “what kind of income tax you owe and how Chapter 13 treats that tax.”

Certain income taxes can’t get “discharged” under Chapter 13 (nor under Chapter 7, for that matter). So your ex-spouse would be required to pay those joint tax debts, and do so IN FULL! And he or she will not be allowed to finish the Chapter 13 case until they’ve been paid.

So, if he or she has filed a Chapter 13 case and all the joint taxes are of the kind that has to be paid in full, then his or her filing the Chapter 13 case may be a great thing for you. Not only is he or she required to pay those taxes before completing the case, but most likely Chapter 13 will enable him or her to avoid paying some OTHER debts in order to make it possible to pay the taxes in full. That’s right: the joint taxes will more likely be paid because they legally have to be, AND because he or she will get relief from paying other debts so that he or she can pay the taxes.

The next blog post in a couple days will show when it does work out so well, and under what circumstances it might not. We’ll also show what happens when the joint tax at issue is NOT the kind that must be paid in a Chapter 13 case. Either way, we’ll explain what you can do to protect yourself, both from your ex-spouse’s Chapter 13 case, and from the tax authorities.

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