497 B.R. 642
1st Cir. BAP2013Background
- Debtor filed Chapter 13 in 2007; IRS filed amended proof of claim for $96,472.43 (prepetition trust‑fund penalties under 26 U.S.C. §6672) as an unsecured priority §507(a)(8) claim, not including postpetition interest.
- Debtor’s confirmed Chapter 13 plan (60 months) provided for full payment of allowed priority tax claims; no distributions to unsecured nonpriority creditors.
- Debtor completed plan payments and received a Chapter 13 discharge stating that all allowed claims had been paid; discharge order explained some taxes not paid in full under the plan are not discharged.
- After discharge the IRS issued Notices of Intent to Levy asserting accrued postpetition interest for several tax periods and refused to suspend collection, citing cases holding postpetition interest nondischargeable.
- Debtor moved to enforce the discharge injunction and stop collection of postpetition interest; bankruptcy court granted the motion. IRS appealed; BAP reversed.
Issues
| Issue | Plaintiff's Argument (Debtor) | Defendant's Argument (IRS) | Held |
|---|---|---|---|
| Whether IRS’s postpetition interest collection violated the discharge injunction | Confirmation bound IRS to the plan amount; IRS had notice and didn’t object, so it is barred from collecting additional interest | Postpetition interest on nondischargeable priority tax claims remains collectable personally by the IRS; plan/payment did not extinguish unmatured interest | The BAP held the plan did not discharge the §507(a)(8)(C) trust‑fund claim or postpetition interest; IRS collection did not violate the discharge injunction |
| Whether a creditor must include postpetition interest in a proof of claim or plan to preserve it | Debtor: IRS could have and did not clearly assert postpetition interest in its claim or plan treatment, so it is bound by the confirmed plan amount | IRS: §502(b)(2) disallows unmatured interest in proofs of claim; such interest survives and is a personal liability regardless of proof form | Court held §502(b)(2) bars postpetition interest from proofs of claim; but unmatured interest remains enforceable personally when nondischargeable under governing statutes |
| Applicability of Espinosa binding‑confirmation rule | Debtor: Espinosa binds creditors who receive adequate notice and don’t object; thus IRS is bound by plan treatment | IRS: Espinosa doesn’t apply because the plan did not explicitly provide for discharge of this tax claim; notice was insufficient to extinguish nondischargeable tax liability | BAP: Espinosa does not apply to negate statutory nondischargeability here because plan lacked clear, unambiguous language discharging the §507(a)(8)(C) claim |
| Whether Bruning/Cousins rule survives Code and controls postpetition interest | Debtor: Espinosa overruled Cousins (argued) | IRS: Bruning and its progeny under the Code preserve creditor’s right to postpetition interest on nondischargeable claims | BAP: Bruning‑line cases remain controlling; postpetition interest on nondischargeable priority tax claims survives and may be collected personally |
Key Cases Cited
- Bruning v. United States, 376 U.S. 358 (Sup. Ct. 1964) (postpetition interest on tax claims excepted from discharge survives bankruptcy)
- Internal Revenue Serv. v. Cousins (In re Cousins), 209 F.3d 38 (1st Cir. 2000) (postpetition interest on nondischargeable tax debt remains collectible)
- United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260 (Sup. Ct. 2010) (confirmed plan binds parties who received adequate notice and failed to object, even if plan violates the Code)
- Leeper v. Pa. Higher Educ. Assistance Agency, 49 F.3d 98 (3d Cir. 1995) (§502(b)(2) bars postpetition interest from claims against the estate)
- Johnson v. Internal Revenue Serv. (In re Johnson), 146 F.3d 252 (5th Cir. 1998) (Congress codified Bruning principles; postpetition interest nondischargeable)
- State of Fla. Dep’t of Revenue v. Diaz (In re Diaz), 647 F.3d 1073 (11th Cir. 2011) (discharge injunction does not bar collection of nondischargeable obligations such as child support interest)