Interest Rates and Tax Claims

By: Laura Day DelCotto

I learn something new every day, so it keeps this life fun.

Somehow, I don’t remember ever specifically focusing on 11 USC §511 in all these years of confirming plans.   With interest rates moving so often this year (and in the wrong direction from borrowers’ perspective), I recently paid some attention to this important timing factor.

According to Section 511, which applies to all Chapters of bankruptcy (except for Chapter 9… interesting to think about the implications in muni settings but that is for another day), the interest rate payable on tax claims under a confirmed plan is set at the rate in place during the month that the plan is confirmed.

This is important, since tax claims are most often repaid under a Chapter 11 plan over 60 months.  Rates are adjusted by the IRS quarterly.  The higher the rate, the more this could be a feasibility factor in confirmation, and the more it could cost you over the 5 year repayment span.

Watching the timing of your case confirmation in relation to the quarterly adjustments from the IRS, in cases with large tax claim issues, is now on my radar in a way it hasn’t been in the past.

And as an aside, always remember that an IRS tax lien encumbers EVERYTHING….including, for individuals, all exempt property. (11 USC §522( c) (2)(B)).   The Tax Man does not go away, so focus on your tax liabilities and any personal exposure: we have seen way too many sad stories and bad outcomes over the years in small business settings.

About DelCotto Law Group

DelCotto Law Group is Kentucky’s asset protection law firm known for its commitment to the lifetime success of its clients. With offices located in Lexington, Louisville and Danville, DLG serves Kentuckians with complicated financial matters, especially in the areas of bankruptcy, complex litigation, and estate planning. For more information about filing bankruptcy or DelCotto Law Group, please call (859) 231-5800 or email info@dlgfirm.com.

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