Court Opinion

ID: 6586295
Source: CourtListenerOpinion
Date Created: 2022-07-20 19:44:17.838077+00
Date Added: 2024-06-11T15:57:28.709429
License: Public Domain

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-*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.