Douglas Ernest Jividen and Cathy Sue Jividen, 646 B.R. 257

Background

Debtors filed three Chapter 13 cases (2006, 2012, 2017). The IRS’s assessed income taxes and prepetition interest for the earlier years were paid through the First and Second Cases; the Debtors received a Chapter 13 discharge in the Second Case on May 23, 2017.
The Third Case was filed May 30, 2017 and confirmed Sept. 27, 2017; the confirmed Third-Case plan provided no payment to the IRS. Amended schedules and claims followed; the IRS ultimately filed Claim 3-4 asserting $931 in priority interest for tax years 2008–2010 and additional unsecured amounts.
The Trustee moved (Sept. 13, 2021) to modify the confirmed plan or dismiss the Third Case for failure to provide for the IRS priority claim; the Debtors objected to Claim 3-4.
The IRS conceded that assessed tax amounts and interest accrued up to the Second-Case petition date were paid; Claim 3-4 consists solely of interest that accrued after the Second-Case filing.
Legal focal point: whether post‑petition interest accrued after the Second Case is entitled to priority under 11 U.S.C. §507(a)(8) (considering the hanging paragraph suspension for prior case pendency), and whether the Trustee’s motion requires dismissal of the Third Case.
Court held the $931 asserted as priority is not entitled to priority and must be treated as a nonpriority unsecured claim; the Trustee’s motion to modify/dismiss was denied and the Debtors were entitled to discharge.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether post‑petition interest in Claim 3‑4 is entitled to priority under §507(a)(8)	IRS: post‑petition interest may continue to accrue and is priority because taxes are nondischargeable and prior‑case suspension extends the look‑back	Debtors: assessed tax and prepetition interest were paid; post‑petition interest falls outside the §507(a)(8) look‑back once suspension is properly calculated	Denied priority. The $931 is nonpriority unsecured interest.
Scope and duration of the hanging‑paragraph suspension from the Second Case	IRS: suspension (and the extra 90 days) should extend so interest falls within look‑back	Debtors: suspension covers only time stay prevented collection (petition through confirmation) plus 90 days; that terminal date precedes the look‑back start dates	Suspension equals Jan 30–Aug 16, 2012 + 90 days (terminal date Nov 14, 2012); that date precedes applicable look‑back commencements, so no look‑back extension.
Whether Trustee’s motion to modify plan or dismiss for failing to provide for the IRS priority claim should succeed	Trustee: confirmed plan does not provide for asserted priority claim; plan must be modified or case dismissed	Debtors: claim is not priority so no modification/dismissal required; completion qualifies Debtors for discharge	Trustee’s motion denied; Third Case may be closed and Debtors discharged.
Whether the court must decide dischargeability under §523(a)(1) for post‑petition interest here	IRS: dischargeability of post‑petition interest may make amounts collectible and should be considered	Debtors: no adversary complaint filed; dischargeability not properly before the court	Court declined to decide §523(a)(1) dischargeability (adversary required) and resolved case on priority classification instead.

Key Cases Cited

In re Larson, 862 F.2d 112 (7th Cir.) (prepetition interest on nondischargeable tax debts is not dischargeable)
Johnson v. Internal Revenue Service, 146 F.3d 252 (5th Cir.) (IRS may continue to accrue postpetition interest on nondischargeable taxes subject to credits and collection limits)
In re Jones, 657 F.3d 921 (9th Cir.) (distinguishes stay protection of prepetition vs. postpetition collection; postconfirmation collection rules apply)
In re Heath, 115 F.3d 521 (7th Cir.) (estate property vests in debtor on confirmation; postconfirmation income outside estate)
In re Montgomery, 446 B.R. 475 (Bankr. D. Kan.) (the single 90‑day addition in the hanging paragraph is not cumulative across multiple prior cases)