United States Court of Appeals

For the First Circuit

No. 99-1976

IN RE: WAYNE COUSINS, DBA COUSINS GARDENS; MARY C. COUSINS,

Debtors,

_____________________

INTERNAL REVENUE SERVICE

Plaintiff, Appellant,

v.

MARY C. COUSINS; WAYNE COUSINS, DBA COUSINS GARDENS,

Defendants, Appellees.

_____________________

LAWRENCE P. SUMSKI,

Trustee.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NEW HAMPSHIRE

[Hon. Joseph A. DiClerico, Jr., U.S. District Judge]

Before

 Boudin, Circuit Judge,

Bownes, Senior Circuit Judge,

and Stahl, Circuit Judge.

Curtis C. Pett, Attorney, with whom Bruce R. Ellisen,

Attorney, and Loretta C. Argrett, Assistant Attorney General,

were on brief for appellant.

Nancy H. Michels, with whom Michels & Michels, was on brief

for appellees.
-2-

April 18, 2000

STAHL, Circuit Judge. The Internal Revenue Service

(“IRS”) appeals a judgment holding that Wayne and Mary Cousins

(“Debtors”), who had filed for bankruptcy protection under

Chapter 12 of the Bankruptcy Code (“the Code”), were not liable

after discharge for postpetition interest on prepetition,

nondischargeable tax liabilities. We reverse.

I.

On November 14, 1990, Debtors filed a petition for

bankruptcy protection under Chapter 12, which is available only

to farmers. On March 14, 1991, the IRS filed a Proof of Claim

for $43,194.42 in assessed federal tax liabilities. Debtors

then filed with the bankruptcy court a Chapter 12 Plan, which

provided for the payment of the government's unsecured priority

claim, but did not provide for the payment of postpetition

interest on the obligation. The bankruptcy court confirmed the

initial Plan and Debtors' subsequent First Modified Revised

Chapter 12 Plan. Each plan required “full payment in deferred

cash payment of all claims entitled to priority under

11 U.S.C. § 507 including . . . the debt to the Internal Revenue

Service in the amount of $43,194.42.” The IRS raised no
-3-

objection to the confirmation of either plan, and during the

life of the plan, the trustee paid the IRS $43,195.00 in

satisfaction of Debtors' prepetition tax liabilities. On

January 31, 1997, the bankruptcy court discharged Debtors after

full satisfaction of all plan payments.

The IRS subsequently demanded a payment from Debtors

of $15,560.11 for interest that had accrued postpetition on the

prepetition tax liability. In response, Debtors brought an

adversarial proceeding, seeking a determination that they were

not liable for postpetition interest on prepetition tax

liabilities, fully paid pursuant to their Chapter 12 plan.

The bankruptcy court held that a Chapter 12 debtor is

discharged from personal postdischarge liability for

postpetition interest on a nondischargeable tax debt because

this interest is not assertable as a claim against the

bankruptcy estate under 11 U.S.C. § 1222. The IRS appealed, and

the district court affirmed. Once again, the IRS appeals.

We review de novo the legal question presented by this

appeal. See Prebor v. Collins (In re I Don't Trust), 143 F.3d

1, 3 (1st Cir. 1998); Thinking Machs. Corp. v. Mellon Fin.

Servs. Corp. (In re Thinking Machs. Corp.), 67 F.3d 1021, 1023

(1st Cir. 1995).

II.
-4-

When a debtor files for protection under Chapter 12,

any actions against the debtor or his property are stayed. See

11 U.S.C. § 1201 (1994). The United States trustee appoints a

trustee who manages the bankruptcy estate. See id.

§ 1202(b)(1). Creditors file claims with the trustee, but may

not include in their filings claims for postpetition interest.

See id. § 502(b)(2). The debtor then files a plan, see id.

§ 1221, which must “provide for the full payment, in deferred

cash payments, of all claims entitled to priority under section

507,” id. § 1222(a)(2). Section 507(a)(8) renders the

government an unsecured priority creditor for its tax

liabilities. The bankruptcy court ultimately decides whether to

confirm the debtor's plan. See id. § 1225. If it does so, it

charges the trustee with “ensur[ing] that the debtor commences

making timely payments required by [the] confirmed plan.” Id.

§ 1202(b)(4). Once these payments are completed, the bankruptcy

court discharges all debts provided for by the plan, except

those specified by § 523(a) as nondischargeable, such as a tax

liability, see § 523(a)(1)(A). The debtor remains personally

responsible for any debt not discharged in bankruptcy. See

Marvin E. Jacob & Jacqueline B. Stuart, The Search for Balance

in Bankruptcy: Congress Debates Bankruptcy Overhaul as Consumer

Bankruptcies Rise, 116 Banking L.J. 369, 377 (1999) (“[D]ebts
-5-

that are nondischargeable pass or ride through the bankruptcy

unaffected and are a postbankruptcy liability of the former

debtor.”).

In Bruning v. United States, 376 U.S. 358 (1964), the

Supreme Court addressed whether the government is entitled to

recover from the debtor postpetition interest on a tax liability

that was not discharged through bankruptcy. See id. at 358

(interpreting the superseded Bankruptcy Act of 1898). As the

Third Circuit explained, in holding that the debtor remains

personally responsible for postpetition accrued interest, the

Bruning Court “distinguished between denial of post-petition

interest against the bankruptcy estate on a nondischargeable

debt and the accrual of interest on a nondischargeable debt

during the pendency of the bankruptcy to be collected from the

debtor after the bankruptcy proceeding is completed.” Leeper v.

Pennsylvania Higher Educ. Assistance Agency, 49 F.3d 98, 101 (3d

Cir. 1995) (emphasis added). The Court reasoned that by

categorizing postpetition interest as nondischargeable, Congress

“intended personal liability to continue as to the interest on

that debt as well as to its principal amount.” Bruning, 376

U.S. at 360. Therefore, it held that postpetition interest on

a nondischargeable tax claim “remains, after bankruptcy, a

personal liability of the debtor.” Id. at 363. Bruning thus
-6-

stands for the proposition that a debtor with tax liabilities in

existence prior to seeking bankruptcy protection is liable after

his debts are discharged for postpetition interest on this tax

debt.

While Bruning addressed the issue under section 17 of

the Federal Bankruptcy Act, ch. 541, § 17, 30 Stat. 544, 550

(1899), repealed by Bankruptcy Code, Pub. L. No. 95-598, 92

Stat. 2549 (1978), its holding is applicable to cases arising

under § 523(a)(1)(A) of the Code. See, e.g., Ward v. Board of

Equalization (In re Artisan Woodworkers), 204 F.3d 888, 891 (9th

Cir. 2000) (noting that “§ 17 of the Bankruptcy Act and

§ 523(a)(1)(A) of the Bankruptcy Code are functionally

equivalent”); Burns v. United States (In re Burns), 887 F.2d

1541, 1543 (11th Cir. 1989) (noting that “pre-Code

interpretations are presumed to have survived the enactment of

the Bankruptcy Code unless Congress has expressed an intention

to change the interpretation of judicially created concepts in

enacting the Code” and concluding that with regard to Bruning,

“Congress did not intend to change the pre-Code law”).

Debtors convinced the bankruptcy and district courts

that, while the Bruning rule might apply to some chapters of the

Code, it does not apply to Chapter 12. The Debtors argue that

Congress wrote § 1222(a)(2) to escape Bruning's dictates. They
-7-

contend that “[i]f Congress had intended that unsecured priority

claimholders were to receive [postpetition] interest, it would

have added . . . 'present value' language to § 1222(a)(2).”

This argument obscures the difference between a Chapter 12

debtor's responsibility to satisfy his plan during the pendency

of the bankruptcy proceeding and his remaining personal

postbankruptcy obligation. While it is true that § 1222's

wording frees the estate from any obligation to pay postpetition

interest, it does not speak to the debtor's personal obligation

for such interest. When a debtor files for bankruptcy under

Chapter 12, his assets and liabilities become part of the

bankruptcy estate, which the trustee manages throughout the

bankruptcy proceeding. The debtor must file a plan that will

resolve his debts, which the Code explicitly states may not

include “unmatured interest,” 11 U.S.C. § 502(b)(2). Upon the

debtor's satisfaction of those debts, the bankruptcy court

discharges all of his outstanding dischargeable debts and the

bankruptcy proceeding is over. See id. § 1228. The debtor

remains personally liable, however, for any nondischargeable

debts. See Jacob & Stuart, supra, at 377. Thus, § 1222(a)(2)

only governs how debts must be paid to satisfy the Chapter 12

plan. When § 1222(a)(2), without the “present value” language,

speaks of fully paying the debts, it means that prior to
-8-

debtor's release from bankruptcy, the estate must pay the full

amount of his debts as they stood at the time of the petition,

as opposed to the current amount plus postpetition interest.

Section 1222 “do[es] not affect the exception of tax debts from

discharge or a debtor's personal liability.” In re Artisan

Woodworkers, 204 F.3d at 892.

Debtors contend that because § 1222(a)(2) prohibits the

inclusion of postpetition interest under the plan, Congress

could not have intended for a debtor postdischarge personally to

have to pay postpetition interest. But, “[i]n all situations

where the Bruning rule is applicable, the bankruptcy plan cannot

make allowances for post-petition interest; the interest merely

accrues and is collectable against the debtor [as opposed to the

estate] after the bankruptcy is completed.” Leeper, 49 F.3d at

102. Moreover, Congress intended this scheme. See Hanna v.

United States (In re Hanna), 872 F.2d 829, 831 (8th Cir. 1989)

(“Taken together, sections 502 and 523 simply demonstrate

Congress' intent to codify the general principle that applied

under Bruning. Postpetition interest is disallowed against the

bankruptcy estate under section 502. Priority tax claims remain

nondischargeable for individual debtors.”).

We turn to whether the postpetition interest on

Debtors' tax liability survived § 1228(a) discharge. Debtors
-9-

note that § 1228(a) mandates that all debts under the plan must

be paid in full before the debtor can be discharged. Proceeding

from this premise, they argue that because nondischargeable tax

debts must be satisfied before discharge is entered, neither the

tax liability nor its interest can survive discharge, and

Bruning is inapplicable. We have a different view.

The plain language of § 1228(a)(2) provides that

discharge specifically does not apply to any debt listed in

§ 523(a). Section 523(a)(1)(A), in turn, unequivocally notes

that “[a] discharge under section . . . 1228(a) . . . does not

discharge an individual debtor from any debt” for a tax

liability, irrespective of “whether or not a claim for such tax

was filed or allowed.” 11 U.S.C. § 523(a)(1)(A). In addition,

Debtors' reading of the Code would render even the principal of

a tax liability extinguished after the plan is completed if, for

example, the claim for tax liability was not filed or allowed

and therefore was not included in the Chapter 12 plan. This

interpretation is untenable. See Bruning, 376 U.S. at 360 (“It

is undisputed that . . . petitioner remained personally liable

after his discharge for that part of the principal amount of the

tax debt and pre-petition interest not satisfied out of the

bankruptcy estate.”). Tax liabilities survive the bankruptcy
-10-

proceeding's termination, and as Bruning held, so does the

interest upon these liabilities. 

Debtors also contend that allowing the IRS to pursue

postpetition interest contradicts the purpose of Chapter 12,

which is designed to aid a struggling family farmer to escape

from under the thumb of debt. Undoubtedly, Congress intended

that Chapter 12 aid debtor-farmers in their attempts to resolve

their financial difficulties. See 132 Cong. Rec. S15074-05

(daily ed. Oct. 3, 1986) (statement of Sen. Thurmond) (“[Chapter

12] is meant to assist those farmers who have the true potential

to reorganize and to allow them relief from heavy debt burden,

and yet allow farmers to pay creditors what is reasonable under

today's difficult economic situation.”). But, Congress also has

decided that “certain problems--e.g., those of financing the

government--override the value of giving the debtor a wholly

fresh start.” Bruning, 376 U.S. at 361; see also In re Hanna,

872 F.2d at 831 (“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.”). We must respect Congress's judgment.

See Leeper, 49 F.3d at 105 (“Congress . . . may choose to amend

the statute with respect to the treatment of post-petition
1Debtors argue that because student loans do not have

priority under 11 U.S.C. § 507, the application of Bruning to

them does not support its application here. We disagree. The

absence of student loans in § 507 merely means that such claims

receive no priority under a bankruptcy plan. That fact is

irrelevant to whether the bankruptcy court can discharge a

student loan's principal and interest. Section 1328(a)(2)

provides that discharge does not apply to “any debt of the kind

specified in paragraph (5), (8), or (9) of section 523(a).”

Section 523(a)(8) covers student loans. Similarly, § 1228(a)

provides that discharge does not apply to “any debt of the kind

specified in section 523(a).” This similarity indicates that

student loans under § 1328(a) and tax liabilities under

§ 1228(a) receive identical treatment under Bruning.

-11-

interest [for student loans1]. But until and unless it does so,

we see no basis for the courts to change the longstanding rule

as to nondischargeability of post-petition interest.”).

III.

We reverse the judgment of the district court and

remand the matter to the district court for entry of judgment in

favor of the IRS.