Thе United States of America, Internal Revenue Service (the “IRS”) appeals from: (1) a bankruptcy court order granting the debtor’s Motion for Determination of a Violation of the Discharge Injunction and Request for Protective Order (the “Determination Motion”); and (2) the bankruptcy court’s denial of reconsideration. For the reasons discussed below, we REVERSE the Determination Motion and deem waived the appeal of the order denying reconsideration.
BACKGROUND
The debtor filed a voluntary petition for chapter 13 relief in April 2007. In Deсern-
In May 2007, the debtor filed and served her initial chapter 13 plan, which provided for payment in full of the allowed priority tax claim of the IRS over the course of the 60-month life оf the plan. The debtor subsequently filed and served a First Amended Plan (the “Amended Plan”), which, like its predecessor, provided for the payment in full of allowed priority tax claims. The Amended Plan provided for no distributions to allowed non-priority unsecured claims.
Absent objection, the court confirmed the Amended Plan in September 2008. Thereafter, the debtor made all of the payments required under the Amended Plan, and in May 2012, she filed a motion for the entry of her discharge. After receiving the trustee’s final report, the bankruptcy court entered the discharge order, also without objection. The discharge order provided that “all allowed claims have been fully paid in accordance with the provisions of the confirmed plan.” The explanation page appended to the discharge order further provided: (1) “the debtor ha[d] completed all payments under the chapter 13 plan”; (2) the “chapter 13 discharge order eliminate[d] a debtor’s legal obligation to pay a debt that is discharged”; and (3) “[djebts for certain taxes to the extent not paid in full undеr the plan” were not discharged.
Following the entry of the discharge order, the IRS sent four Notices of Intent to Levy to the debtor. In the first notice, the IRS indicated that the debtor owed “interest charges” of $5,332.05 for the tax year ending June 30, 2003. In the second notice, the IRS indicated that the debtor owed interest charges of $3,697.31 for the tax year ending December 31, 2003. The third notice reflected interest charges of $2,302.69 due for the tax year ending September 30, 2004. The last notice reflected interest charges of $6,026.03 for the tax year ending Decembеr 31, 2004. In each notice, the IRS warned:
If you don’t call us immediately or pay the amount due ... we may seize (“levy”) any state tax refund to which you’re entitled ...
If you still have an outstanding balance after we seize any state tax refund, we may take possession of your other property or your rights to property.
After receiving the notices, the debtor repeatedly asked the IRS to suspend the threatened levy, on the grounds that the IRS’s claim was paid in full under the Amended Plan. Citing Internal Revenue Serv. v. Cousins (In re Cousins),
The debtor therefore filed the “Determination Motion, in which she asked the court for an immediate determination as to whether the IRS’s actions constituted a willful violation of the discharge injunction under § 524, and an order halting the threatened seizure action. In support, the debtor asserted: (1) she timely payed the IRS the full sum set forth in the amended proof of claim in accordance with the terms of the Amended Plan; (2) the IRS never objected to her motion for entry of dischargе or to the Amended Plan; (3) the IRS’s claim fell within the scope of her discharge; and (4) United Student Aid Funds, Inc. v. Espinosa,
The bankruptcy court conducted a hearing on the Determination Motion in October 2012. The debtor argued during the hearing that: (1) the “IRS received notice” (presumably of the pendency of confirmation proceedings); (2) the IRS’s amended proof of claim “did not indicate that they were going to be asserting any interest after the fact and there’s nothing in the Code per se that says that ... this claim is entitled to interest”; and (3) the IRS did not appeal the confirmаtion order. Relying on Espinosa, the debtor asserted that the IRS was bound by the confirmation order. She added: “We are not seeking a discharge of the debt. We paid the debt.”
The IRS countered that the rule under Cousins, which remains good law after Espinosa, is that “post-petition accruals ... remain nondischargeable.” The IRS distinguished the instant case from Espi-nosa, by arguing that in Espinosa, “the plan specifically provided that the student loan debt would be discharged,” while there was “no such provision here in the plan.” Lastly, the IRS asserted that the discharge order specifically noted that “there [were] taxes that [were] nondis-chargeable.”
The bankruptсy court granted the Determination Motion, ruling from the bench as follows:
IRS never specifically sought post-petition interest and so what they were — it was claimed they would do and what they said they would do is the amount that they were paid. Now I don’t have any problem agreeing with the debtor here. I don’t even think I need Espi-no[s ]a because I think IRS got what it claimed it wanted and it got it. It could have added one line to the proof of claim and said, “Plus interest as accrues after the filing of the petition under,” I forgot what the section number is of the IRC. But they could have thrown that in and they did not.
And so here we are years later and all of a sudden IRS raises its head and says, “Oh, no. We want interest.” I’ll give you three reasons why IRS has to lose. No. 1 is common sense. No. 2 is Espi-nóos ]a. No. 3 is basic fairness.
The debtor has to prevail here. The motion for determination of a violation is granted. Any action by IRS to collect this interest is inappropriate and a violation of the discharge injunction. An order to that effect will enter.
The IRS subsequently filed a motion for reconsideration (the “Reconsideration Motion”) that the bankruptcy сourt denied. This appeal followed.
Relying on Bruning v. United States,
Continuing to rely on Espinosa, the debtor counters: (1) confirmation of the Amended Plan bound the IRS to the amount provided for in the plan; (2) the IRS failed during the five-year pendency of her Amended Plan to provide notice of its claim for post-petition interest; and (3) the drafters of the Code could not have intended the absence of a space for entering the interest rate on the proof of claim form to amount to a “ ‘gotcha’ clause.”
JURISDICTION
A bankruptcy appellate panel is “ ‘duty-bound’ ” to determine its jurisdiction before proceeding to the merits, even if not raised by the litigants. Boylan v. George E. Bumpus, Jr. Constr. Co. (In re George E. Bumpus, Jr Constr. Co.),
STANDARD OF REVIEW
A bankruptcy court’s findings of fact are reviewed for clear error and its conclusions of law are reviewed de novo. Lessard v. Wilton-Lyndeborough Coop. Sch. Dist.,
DISCUSSION
Although the IRS identifies the bankruptcy court’s denial of the Reconsideration Motion as one of the two issues on appeal in both its notice of appeal and in its statement of issues, it ignores the reconsideration issue in its brief, but for the unsupported request for reversal of the denial of reconsideration. Accordingly,
While the debtor and the IRS focusеd much of their arguments on the application of Espinosa to the circumstances of this case, the matter turns on the type of tax debt at issue, and the statutory provisions providing for discharges in chapter 13 proceedings.
I. Section 502: Proofs of Claim and Post-petition Interest
Section 502 provides, in pertinent part, that:
(a) A claim or interest, proof of which is filed under [§ ] 501 of this title, is deemed allowed, unless a party in interest, including a creditor of a general partner in a partnership that is a debtor in a case under chapter 7 of this title, objects.
(b) Except as provided in subsections (e)(2), (f), (g), (h) and (i) of this section, if such objection to a claim is made, the court, after notice and a hearing, shall determine the amount of such claim in lawful currency of the United States as of the date of the filing of the petition, and shall allow such claim in such amount, except to the extent that—
(2) such claim is for unmatured interest!.]
11 U.S.C. § 502.
Thus, based on § 502, courts have held that “creditors are not entitled to include unmatured (or ‘post-petition’) interest as part of their claims in the bankruptcy proceedings.” Leeper v. Pa. Higher Educ. Assistance Agency, (PHEAA),
II. Section 1322: Payment of Claims in Chapter 13
Section 1322(a) governs what a chapter 13 plan must do. Section 1322(b) governs what a plan may do, subject to certain limitations.
Section 1322(a)(2) requires that a plan “provide for the full payment, in deferred cash payments, of all claims entitled to priority under [§ ] 507 of this title, unless the holder of a particular claim agrees to a different treatment of such claim.” Relevant to this case, § 507(a)(8) grants priority status to many tax claims.
The overwhelming majority of chapter 13 plans do not provide for post-petition interest on unsecured claims for two reasons. First, a chapter 13 plan can only provide for allowed claims. As discussed above, § 502(b)(2) рrohibits a claim from including unmatured interest. Thus, an allowed unsecured claim does not include unmatured post-petition interest, and the chapter 13 plan may not provide for payments outside of the allowed claim. Second, § 1322(b)(10) provides the lone exception in which a plan may provide for the payment of interest accruing after the petition date on unsecured claims. Section 1322(b)(10) allows for the payment of post-petition interest “on unsecured claims that are nondischargeable under section 1328(a),” only when “the debtor has disposable income available to pay such interest after making provision for full payment of all allowed claims.” See In re Ed-monds,
III. Sections 1328 and 524: The Scope of Discharge and the Discharge Injunction
Section 1328(a)(2), which governs the discharge of a chapter 13 debtor, provides, in relevant part, that “after completion by the debtor of all payments under the plan,” the court shall “grant the debtor a discharge of all debts provided for by the plan or disallowed under [§ ]502 ..., except any debt of the kind specified in [§ ] 507(a)(8)(C) or in paragraph (1)(B), (1)(C), (2), (3), (4), (5), (8), or (9) of section 523(a)[.]” 11 U.S.C. § 1328(a)(2) (emphasis added). The debts specified in § 507(a)(8)(C) are “allowed unsecured claims of governmental units, only to the extent that such claims are for ... a tax required to be collected or withheld and for which the debtor is liable in whatever capacity!)]” 11 U.S.C. § 507(a)(8)(C). The IRS asserts — and the debtor does not dispute — that the trust fund recovery penalties assessed under 26 U.S.C. § 6672 in this case come within the scope of § 507(a)(8)(C) and are therefore excepted from discharge.
In the typical chapter 13 case with priority tax claims, a debtor has priority tax claims under § 507(a)(8) for unpaid income taxes due for recent tax years. See 11 U.S.C. § 507(a)(8)(A). To be con-firmable, the chapter 13 plan would have to pay those claims in full over the life of the plan. 11 U.S.C. § 1322(a)(2). As discussed above, the chapter 13 plan would not — and generally could not — pay post-petition interest to the extent it accrued on those claims. However, upon the completion of all payments under the plan and the issuance of a discharge, the entire priority tax claim is discharged, because such debt was “provided for by the plan.” See 11 U.S.C. § 1328(a). Thus, successful completion of a chapter 13 plan allows for the discharge of priority tax debts that are generally nondischargeable outside of chapter 13 under § 523(a)(1)(A) (as it ex
When the priority tax claim arises under § 507(a)(8)(C), the result is different because such tax claims are an exception to the general rule under § 1328. The debtor must still pay such claim in full without post-petition interest
Pursuant to § 524, a discharge under chapter 13 “operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any [discharged] debt as a personal liability of the debtor_” 11 U.S.C. § 524(a)(2). “Significantly, the discharge injunction prohibits collection only with respect to dischargeable debts and does not apply to nondischargeable debts.” State of Fla. Dep’t of Revenue v. Diaz (In re Diaz),
IV. The Bruning Rule and its Extensions
In Bruning, the Supreme Court addressed whether under the Bankruptcy Act a debtor’s personal liability for post-petition interest on a debt for taxes survives bankruptcy to the extent it is not paid out of the estate.
[L]ogic and reason indicate that post-petition interest on a tax claim excepted from discharge by [§ ]176 of the [Bankruptcy] Act should be recoverable in a later action against the debtor personally, and there is no evidence of any congressional intent to the contrary[.]
Id. at 360,
[Section] 17 is not a compаssionate section for debtors. Rather, it demonstrates congressional judgment that certain problems — e.g., those of financing government — override the value of giving the debtor a wholly fresh start. Congress clearly intended that personal liability for unpaid tax debts survive bankruptcy. The general humanitarian purpose of the Bankruptcy Act provides no reason to believe that Congress had a different intention with regard to personal liability for the interest on such debts.
Id. at 361,
The vast majority of courts, including the First Circuit, extend the application of Bruning to cases arising under the Code, to nondischargeable debts other than tax obligations, and to cases other than liquidation cases. See, e.g., In re Cousins,
Taken together, sections 502 and 523 simply demonstrate Congress’ intent to codify the general principle that applied under Bruning. Post-petition interеst is disallowed against the bankruptcy estate under section 502. Priority tax claims remain nondischargeable for individual debtors. Under both the Act and the Code, Congress attempted to balance the interests of the debtor, creditors and the government, and in the instance of taxes and interest on such, Congress has determined that the problems of financing the government override granting debtors a wholly fresh start. H.R.Rep. No. 595, 95th Cong., 2d Sess. at 274 (1978), reprinted in 1978 U.S.Code Cong, and Admin. News 5963, 6231. Thus, post-petition interest is nondischargeable, and [the debtors] remain personally liable fоr that interest subsequent to bankruptcy proceedings.
Johnson v. Internal Revenue Serv. (In re Johnson),
Notwithstanding Bruning and Cousins, § 1328(a) discharges post-petition interest on tax claims that can be discharged through the completion of a chapter 13 plan and the issuance of a chapter 13 discharge. Similar treatment for some tax claims is not available under chapter 12. Compare 11 U.S.C. § 1328(a) (allowing for the discharge of certain priority tax claims) with § 1228(a) (incorporating § 523(a) in its entirety, making all priority taxes under § 507(a)(8) nondischargeable).
Y. Espinosa
In Espinosa, the Supreme Court addressed the binding nature of confirmation orders. There, a debtor with a nondis-
Three years following the entry of the discharge order, the United Statеs Department of Education (the “Department”) commenced efforts to collect the unpaid interest on the debtor’s student loans. Id. at 266,
The Supreme Court stated that “a proposed bankruptcy plan becomes effective upon confirmation ... and will result in a discharge of the debts listed in the plan if the debtor completes the payments the plan requires.... ” Id. at 264,
Courts have held that Espinosa stands for the “limited proposition that a confirmed plan is binding on all parties-in-interest, provided the plan proponent afforded such parties adequate notice, consistent with the Due Process Clause of the United States Constitution — even if the plan violates the Bankruptcy Code in some particulars.” In re Deavila,
In this case, the IRS does not dispute that it received notice of the filing of the Amended Plan. However, unlike Es-pinosa, the confirmed plan in this case did not provide for the discharge of the priority tax claim upon completion of the plan.
CONCLUSION
Application of Espinosa, and the cases applying that decision, to the facts of this case yields the conclusion that the terms of the Amended Plan did not provide for the discharge of the priоrity tax claim. The Amended Plan only provided for the payment in full of the priority tax claim, as it was required to do under § 1322(a)(2). In the absence of language clearly providing for a discharge of the priority tax claim for so-called trust fund taxes, the debtor failed to give the IRS the clear, open, and unambiguous notice of any intent to discharge such claim which the decision in Espinosa and due process requires. In the absence of such notice, the priority claim remains nondischargeable under the provisions of § 1328(a)(2) and the standard artiсulated in Bruning. Because the discharge injunction does not apply to nondischargeable debts, we conclude that the bankruptcy court erred when it determined that the IRS’s collection efforts violated the discharge injunction.
Based on the foregoing, we REVERSE the order granting the Determination Motion.
Notes
. Unless otherwise indicated, the terms "Bankruptcy Code,” "section” and "§ " refer to Title 11 of the United States Code, 11 U.S.C. §§ 101, et seq., as amended.
. Section 6672 of the Internal Revenue Code provides, in pertinent part:
(a) General Rule. — Any person required to collеct, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over.
26 U.S.C. § 6672.
. Although courts recognize limited exceptions to the general prohibition on the payment of post-petition interest from the estate, see Willauer v. United States Internal Revenue Serv. (In re Willauer),
. Section 523(a)(1)(A) provides the general rule that priority claims under § 507(a)(8) are nondischargeable. This is why the chapter 7
. This is so unless the debtor fits within the narrow exception of § 1322(b)(10).
. Section 17 of the Bankruptcy Act provided, in relevant part, that a "discharge in bankruptcy shall release a bankrupt from all of his provable debts, whether allowable in full or in part, except such as (1) are due as a tax levied by the United States....” Bruning,