Smith v. Terrell Contracting Co. (In re Smith)

D. Georgia

Smith v. Terrell Contracting Co. (In re Smith)

35 B.R. 451, 1983 Bankr. LEXIS 5558

CourtDistrict Court, D. Georgia

DecidedAugust 23, 1983

DocketBankruptcy No. 81-01121A; Adv. No. 81-2217A

StatusPublished

Cited by1 cases

This text of 35 B.R. 451 (Smith v. Terrell Contracting Co. (In re Smith)) is published on Counsel Stack Legal Research, covering District Court, D. Georgia primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook

Smith v. Terrell Contracting Co. (In re Smith), 35 B.R. 451, 1983 Bankr. LEXIS 5558 (gad 1983).

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Opinion

ORDER

W. HOMER DRAKE, Bankruptcy Judge.

This case is before the Court on the debt- or’s objection to the proof of claim of the Internal Revenue Service. On July 12, 1983, this Court held a hearing on the debt- or’s objection, and the matter was taken under advisement. At that hearing, the government raised a procedural objection as to the pleadings. This Court finds that the government’s objection is not fatal to the debtor’s case.

The IRS had a claim against the debtor’s estate, and that claim was supported by a federal tax lien. The IRS’ claim, however, was provided for in the debtor’s Chapter 13 plan as a secured claim. Because the claim was provided for in the plan, the IRS is bound by this Court’s discharge of debtor on May 19,1983. While a lien may pass through the bankruptcy case unaffected under § 506(d) of the Bankruptcy Code, this is true only to the extent that the claim is not an allowed claim. 11 U.S.C. § 506(d). Moreover, if the secured claim is paid under the plan, the debtor is entitled to have the lien cancelled. In the Matter of Aycock, 15 B.R. 728, 5 CBC 2d 856 (Bkrtcy.E.D.N.C.1981). Thus, as this debtor is enti-[452]*452tied to have the IRS tax lien cancelled, and the IRS claim was provided for in the debt- or’s plan, § 506(d) does not shelter this lien through the bankruptcy case.

The IRS, by holding the debtor’s 1981 income tax withholdings of $2,545.85, is in violation of the automatic stay of § 362(a)(7) of the Bankruptcy Code. In re Mealey, 16 B.R. 800, 5 CBC 2d 1345 (Bkrtcy.E.D.Pa.1982). By holding this income tax withholding of the debtor, the government is attempting to exercise a setoff against the debtor’s tax liabilities. In its own brief, the government admits that it has no setoff right with respect to any post-petition withholding. See IRS’ brief at 2. As to the debtor’s prepetition withholdings, the United States Supreme Court has held that § 542(a) authorizes the Bankruptcy Court to order the IRS to turn over seized proper ty. United States v. Whiting Pools, Inc., - U.S. -, 103 S.Ct. 2309, 76 L.Ed.2d 515, 1983. Therefore, the debtor is entitled to the fund held by the IRS that constitutes 1981 income tax withholdings.

Therefore, for the above-stated reasons, the objection of the debtor to the IRS’ claim is allowed, and the IRS is hereby ordered to turn over to the debtor $2,545.85 of 1981 income tax withholdings.

IT IS SO ORDERED.

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ORDER

W. HOMER DRAKE, Bankruptcy Judge.

This case is before the Court on the debt- or’s objection to the proof of claim of the Internal Revenue Service. On July 12, 1983, this Court held a hearing on the debt- or’s objection, and the matter was taken under advisement. At that hearing, the government raised a procedural objection as to the pleadings. This Court finds that the government’s objection is not fatal to the debtor’s case.

The IRS had a claim against the debtor’s estate, and that claim was supported by a federal tax lien. The IRS’ claim, however, was provided for in the debtor’s Chapter 13 plan as a secured claim. Because the claim was provided for in the plan, the IRS is bound by this Court’s discharge of debtor on May 19,1983. While a lien may pass through the bankruptcy case unaffected under § 506(d) of the Bankruptcy Code, this is true only to the extent that the claim is not an allowed claim. 11 U.S.C. § 506(d). Moreover, if the secured claim is paid under the plan, the debtor is entitled to have the lien cancelled. In the Matter of Aycock, 15 B.R. 728, 5 CBC 2d 856 (Bkrtcy.E.D.N.C.1981). Thus, as this debtor is enti-[452]*452tied to have the IRS tax lien cancelled, and the IRS claim was provided for in the debt- or’s plan, § 506(d) does not shelter this lien through the bankruptcy case.

The IRS, by holding the debtor’s 1981 income tax withholdings of $2,545.85, is in violation of the automatic stay of § 362(a)(7) of the Bankruptcy Code. In re Mealey, 16 B.R. 800, 5 CBC 2d 1345 (Bkrtcy.E.D.Pa.1982). By holding this income tax withholding of the debtor, the government is attempting to exercise a setoff against the debtor’s tax liabilities. In its own brief, the government admits that it has no setoff right with respect to any post-petition withholding. See IRS’ brief at 2. As to the debtor’s prepetition withholdings, the United States Supreme Court has held that § 542(a) authorizes the Bankruptcy Court to order the IRS to turn over seized proper ty. United States v. Whiting Pools, Inc., - U.S. -, 103 S.Ct. 2309, 76 L.Ed.2d 515, 1983. Therefore, the debtor is entitled to the fund held by the IRS that constitutes 1981 income tax withholdings.

Therefore, for the above-stated reasons, the objection of the debtor to the IRS’ claim is allowed, and the IRS is hereby ordered to turn over to the debtor $2,545.85 of 1981 income tax withholdings.

IT IS SO ORDERED.

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Bluebook (online)

35 B.R. 451, 1983 Bankr. LEXIS 5558, Counsel Stack Legal Research, https://law.counselstack.com/opinion/smith-v-terrell-contracting-co-in-re-smith-gad-1983.

Opinion

W. HOMER DRAKE, Bankruptcy Judge.

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