Two new issues in post-BACPA 13 cases.

• Author: Baer, Charles
• Position: Bankruptcy Abuse Prevention and Consumer Protection Act of 2005

Along with most other bankruptcy attorneys, I have had to apply a number of new or amended provisions of bankruptcy law in the year since the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (Pub. L. 109-8) (BAPCA) became effective. In recent cases, I have discovered two changes that I had not expected; both imported principles I was familiar with in Ch. 11 to Ch. 13 cases. First, the rule that postpetition interest on nondischargeable tax or other debt survives discharge will be more noticeable in Ch. 13 cases. Second, there will be an issue of whether attorneys' fees with respect to dischargeability and related objection to claim litigation will be entitled to administrative expense status.

Postpetition Interest on Nondischargeable Debt

Prior to October 17, 2005, a Ch. 13 discharge generally discharged all tax liabilities "provided for" under a Ch. 13 plan. For cases filed on or after that date, a Ch. 13 discharge does not apply to, inter alia, debts of the kind specified in [section] 507(a)(8)(C) or in paragraphs (1)(B) or (1)(C) of [section] 523(a). (1)

The 26 U.S.C. [section] 6672, trust fund recovery penalties, also known as the 100 percent penalty, is one liability described under [section] 507(a)(8)(C): "[A] tax collected or withheld and for which the debtor is liable in whatever capacity." An employer's liability for the taxes it withheld and state sales taxes collected from consumers would also be within the scope of this provision. In Ch. 13 cases, these liabilities are normally paid in full, but without interest. (2)

Liabilities for taxes where no return has ever been filed, or where the return was filed late and within two years of the petition date, are made nondischargeable by 11 U.S.C. [section] 523(a)(1)(B). Taxes in which the debtor made a fraudulent return or willfully attempted in any matter to evade or defeat tax are made nondischargeable by 11 U.S.C. [section] 523(a)(1)(C). (3) Unlike the liability for withheld taxes, these liabilities are general unsecured claims, normally paid (or not paid) along with other nonpriority unsecured claims. Student loan debt nondischargeable under [section] 523(a)(8) was nondischargeable in Ch. 13 cases even before BAPCA.

BAPCA also made [section] 523(a)(2), fraud and fraudulent credit debts, [section] 523(a)(3), unscheduled debt, and [section] 523(a)(4), embezzlement and larceny debt nondischargeable in Ch. 13 cases. Section 523(a)(2) applies not only to situations where a creditor relies on a materially false financial statement given by a debtor with the intent to deceive, but also provides for a presumption of nondischargeability for certain purchases of luxury consumer goods within 90 days prior to the petition date and certain cash advances within 70 days of the petition date.

It should be noted that the nondischargeability provisions for tax debt, unscheduled debt, and student loans apply regardless of whether...