In re: Brenda Marie Jones

The statutory suspension provision under 11 U.S.C. § 507(a)(8) does not apply to a tax debt, which would otherwise be discharged in a Chapter 7 bankruptcy proceeding, where the debtor’s estate property re-vested after a prior bankruptcy proceeding and before the tax debt came due.

Brenda Marie Jones received a Chapter 7 discharge of her debts, which included a discharge of her tax debt owed to the California Franchise Tax Board (FTB). The Bankruptcy Appellate Panel affirmed, rejecting the FTB’s argument that the tax debt is excepted from discharge under 11 U.S.C. § 507(a)(8). The Ninth Circuit also found that the “three-year lookback” period was not suspended and Jones’s tax debt was not excepted from discharge. Since Jones’s tax debt arose more than three years before she filed for Chapter 7 bankruptcy, it would be discharged unless the three-year lookback period was statutorily suspended. The lookback period is suspended when “an automatic stay precludes creditors from collecting on the debt against the property of the bankruptcy estate.” The bankruptcy court had dismissed a Chapter 13 bankruptcy petition filed by Jones and her husband nearly a year before Jones filed for Chapter 7 bankruptcy. The FTB argued that Jones’s tax debt was not discharged because the Chapter 13 bankruptcy proceeding precluded the FTB from collecting on Jones’ tax debt. However, the Court found that when the bankruptcy court confirmed the Chapter 13 plan, the estate property re-vested in Jones and became her property. Thus, no stay provision precluded the FTB from collecting on the debt, which came due after the revesting occurred. The Court refused to equitably toll the lookback period, because the FTB “was neither precluded from collecting on the tax debt nor did it actively try to protect its claim.” AFFIRMED.