Archive for April, 2008

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Poster Children for Bankruptcy Reform

Tuesday, April 8th, 2008

There has been so much written about BAPCPA and the creditors who practically wrote the law and got it passed. While I cannot doubt that creditors – such as the good folks at MBNA (which was bought out by Bank of America), paid their lobbyists millions of dollars for years to get the Bankruptcy Code changed, a recent case perhaps rightly suggested that lenders had good reason to seek a change in the law. The case, decided in February, came out of the Northern District of Alabama.

The husband and wife debtors filed their case in October 2006. It was the wife’s seventh bankruptcy case (no that’s not a typo….that’s 7) and the husband’s fifth (and again, not a typo….that’s 5). As the October filing was their second case within a year, they filed a motion to seek an extension of the automatic stay. Since 2005, if a debtor has had a case pending within the year prior to the case being filed, the stay expires 30 days unless the court orders otherwise. The hearing of the motion must be held within the 30 day period. The debtors needed the stay to prevent a foreclosure on their home.

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The Insider View of Friendship

Friday, April 4th, 2008

When is a “friend” an insider and when is an “insider” a friend? That was a question that a Kansas Bankruptcy Court had to struggle with in the case of In re Tankersley.

The chapter 7 debtor’s friend (Anne) paid about $21,000 on the debtor’s mortgage. A little less than a year prior to filing the case, the debtor paid her back $5,000. About 6 months later, she paid her $4,000 and as of the date of the petition, she still owed her about $12,000. The debtor identified the payments to Anne on her statement of financial affairs, and identified her as an “insider.”

The chapter 7 trustee sued the friend (Anne) to avoid the preferential transfer and to recover the value of the property. The trustee alleged that he was entitled to a one-year look back period because Anne was an insider, and was disclosed as such on the debtor’s statement of financial affairs.

The court found that they did not appear to be especially close friends. The debtor had never been to Anne’s home, and they spoke on the phone every few weeks, and saw each other sporadically.

Annie also did not fall under the definition of per se insider, such as a family member, a business partner, or a corporation that the debtor has an interest in or controls. While the court acknowledged that the debtor identified Anne as an insider, that disclosure was not dispositive but was done “for the debtor’s own protection.” The trustee did not prove that Anne was an insider: Anne “did not cross the threshold from friend to insider….just as [the debtor] never crossed the threshold into [Anne’s] home.” Since Annie was not an insider, she does not need to turn over the payments she received from the debtor.

In re Tankersley, 382 BR 522 (Bankr.D.Kan February 13, 2008).

Related:
Preferences: What are they?

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Would-a, Should-a, Could-a.

Thursday, April 3rd, 2008

Everyone has found themselves saying that at one time or another. Perhaps it was the regrettable decision of a particular business venture (or business partner), or perhaps it was ordering the chicken salad special, rather than a turkey club. Or, perhaps, you happened to be joint debtors who recently learned what can happen when you do not do what you should have and could have done.

The debtor’s joint case was filed as a chapter 13 in July of 2007. At a later hearing, the debtors advised the court that they intended to convert the case to chapter 7. At a later 341 meeting, the debtors provided the trustee with a copy of their 2005 income tax return, but did not provide a copy of the 2006 tax return, even though that return had been filed. The Trustee warned the debtors to produce the return, and advised them that he would seek a dismissal of the case if it was not provided. The meeting was continued to the following month to allow the debtors time to give the returns to the trustee.

At the continued meeting, the debtors’ attorney appeared without the debtors and without the tax return despite what she relayed was “harsh admonitions to her clients” to produce the documents. The return was eventually provided 36 days after the deadline set forth in Section 521(e)(2)(A)(i).

This code provision requires the debtors to provide the trustee a copy of the federal income tax return required under applicable law for the most recent tax year ending immediately before the commencement of the case for which a federal income tax return was field. The code requires that the case be dismissed unless the debtor can establish that the failure to abide by the provision was beyond the debtor’s control, however, the court acknowledged that seeking dismissal was within the discretion of the trustee.

The Chapter 7 Trustee exercised that discretion and moved to dismiss the case because the debtor did not provide copies of the 2006 tax returns. In allowing the motion, the court noted that “Congress did not intend that trustees spend inordinate amounts of time chasing down tax returns from debtors who have sought relief in bankruptcy.”

In re Nordstrom, 381 BR 766 (Bankr.C.D.Cal., January 18, 2008).

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Storm Preparation: Bankruptcy & Tax Returns

Wednesday, April 2nd, 2008

There are many important aspects of filing bankruptcy and getting the relief that the bankruptcy code offers. In setting the stage for filing bankruptcy and getting the relief you need, debtors need to be aware of some important obligations: the need to file tax returns.

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