When HHS mandates began in the mid-2000s, many people suffered financial distress due to penalties they incurred for not having health insurance. In fact, such issues sparked severe financial crises in many cases, prompting those affected to seek immediate debt relief. For some, filing Chapter 13 bankruptcy was the answer.
On a recent Wednesday, the 3rd U.S. Circuit Court of Appeals ruled that monies owed to the IRS take priority over all other debt when a person files for bankruptcy under the Chapter 13 program. Some have taken issue with the court’s ruling, arguing that because the debt owed to the IRS was a penalty, it should not be considered taxes. Of course, priority over other debts in a Chapter 13 bankruptcy. The appellate court’s decision upholding a lower court’s ruling that held the monies owed are considered “taxes” because the penalties were voluntarily incurred by noncompliance with a mandate to purchase health insurance.
A trustee is responsible for paying creditors in Chapter 13
When a person files a Chapter 13 petition, a trustee is appointed to handle the restructured payment plans that are in place, once approved by the court, to pay back creditors. Secured debts (mortgage, car loans, etc.) typically have priority over unsecured debts (credit card debt, medical bills, etc.), which are debts that are not connected to any type of collateral as is the case in a secured loan. A petitioner will want to be kept informed as to the order of priority in which debt repayments will occur in his or her case.
Questions regarding Chapter 13 and other bankruptcy programs
People often refer to Chapter 13 bankruptcy as the wage earner’s debt relief program” because a petitioner must demonstrate that he or she has a reliable source of income to qualify for relief. Anyone considering filing for Chapter 13 or other type of bankruptcy may request a meeting with an experienced bankruptcy law attorney before filing a petition. The attorney can also remain on hand to help resolve any legal problems that arise as the bankruptcy process unfolds.