When I was in college, Hurricane Gloria was bearing down on Southern New England. I went to stay with my grandparent at their house in Tiverton. As the winds were blowing (and at the insistence of my grandmother), we nailed plywood to the windows that faced the water. All that preparation eventually paid off. Back in April, I blogged about the importance of having tax returns filed. I came across a case decided on May 15 out of the US Bankruptcy Court for the Northern District of Ohio that amplifies the requirement that taxed be filed in chapter 13 cases before the first meeting of creditors has concluded. It is an important reminder of how the Bankruptcy Code is now working since BAPCPA.
The debtor filed a chapter 13 petition in October 2007 and the creditors meeting (or § 341 meeting) was scheduled for December 12, 2007. At that meeting, the IRS appeared and reported that there was no record that the Debtor having filed a 2000 or 2004 tax return. There was a separate confirmation hearing, and the Chapter 13 trustee recommended that the plan be confirmed. No one objected and the plan was confirmed. After that, the IRS moved to dismiss the case pursuant to § 1308 based on the debtors failure to file tax returns for the 4-year period preceding the petition date.
Debtor objected and claimed, among other things, that he did file the return. He argued that he paid a service to file the returns and was unaware they were not filed until he appeared at the § 341 meeting. Even though he learned of it, neither he, nor his attorney asked that the meeting be held open.
The case was dismissed. In re Perry, Bankr.N.D.Ohio, 07-18293
So how could this have been avoided? The first and most simple answer is that the debtors attorney should have required the debtor to produce 4 years of tax returns before the case was even filed. I require it of my clients. Why? To ensure that they have complied with § 1308 of the Bankruptcy Code and to make sure that their cases do not get dismissed for failing to comply with it. The second, and perhaps not so simple but nevertheless important way the dismissal could have been avoided (or at least delayed) is by either the debtor or debtor’s counsel requesting that the § 341 meeting be held open. Under § 1308, the Chapter 13 Trustee may hold a § 341 meeting open for “120 days after the date of that meeting” “for any return that is past due as of the date of the filing of the petition.” In other words, debtor’s counsel should have asked to have the meeting held open.
If you’re thinking about chapter 13, get those tax returns filed. And that means all of them. If you fail to do so, or if your attorney fails to ensure that the § 341 meeting is helped open, speak up and ask that it be held open. Failing that, your chapter 13 case will be dismissed.
During that hurricane, I stood with my grandfather on his lawn and watched debris fly hundreds of feet above us. As a retired merchant marine, he had a fearless view of ocean weather that many found disconcerting. Nothing ever hit the plywood, but my grandmother was happy the windows were protected. It was better to prepare before the storm, and than to pay later.
