Bankruptcy Court | Shared Responsibility Payments | Affordable Care Act

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In a recent case out of the 3rd Circuit, the Court of Appeals affirmed a ruling emanating from the Bankruptcy Court for the Eastern District of Pennsylvania.
United States Insolvency/Bankruptcy/Re-Structuring

Case: Szczyporski v. Internal Revenue Service (In re Szczyporski), No. 21-01858 (3d Cir., May 11, 2022).

In a recent case out of the 3rd Circuit, the Court of Appeals affirmed a ruling emanating from the Bankruptcy Court for the Eastern District of Pennsylvania finding that payments owed by individuals to the IRS for so-called "shared responsibility payments" under the Affordable Care Act ("ACA") are taxes entitled to priority in a bankruptcy case.

The issue is relevant for Chapter 13 debtors, as was the case here, based on the fact that tax debts get paid before other debts in a Chapter 13 plan. Such debts are generally required to be paid pursuant to an individual's Chapter 13 plan, whereas other non-priority debts can often be forgiven or discharged. The existence of priority debts often affect the required amount of a Chapter 13 debtor's plan payment, and can even prevent a Chapter 13 debtor from being able to confirm a plan where that debtor has insufficient income to satisfy the required payments - rendering a debtor's plan infeasible.

The individual mandate of the ACA was subsequently eliminated for individuals in late 2018, but the principals remain relevant with respect to other taxes in Chapter 13 cases, as well as cases brought under Chapter 7 or even individual chapter 11 cases.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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