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Archive for Gregory Mitchell

Bankruptcy: The Mechanics of Exemptions and Related Issues

Bankruptcy: The Mechanics of Exemptions and Related Issues

Most bankruptcy attorneys have a basic level of understanding of the how exemptions work.  At a very broad level, a claim of exemptions removes property of a consumer debtor (note that business debtors are not afforded exemptions) from the bankruptcy estate and thereby serves as a foundation for the “fresh start” that bankruptcy is designed to provide.

But I suspect that even seasoned bankruptcy attorneys – including myself – lack a detailed understanding of many of the nuances of the mechanics of exemptions unless they’ve been faced with issues related to the claiming of exemptions.  A recent case has prompted a “back to the basics” look at the mechanics of exemptions.

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Discharging Taxes In Bankruptcy – United States v. Helton

Discharging Taxes In Bankruptcy – United States v. Helton

The recent case of United States v. Helton, Case No. 20-5686 (6th Cir., 2021) addresses the dischargeability of taxes under 11 U.S.C. § 523(a)(1)(C).  The dischargeability of taxes is a somewhat complicated maze of Bankruptcy Code provisions that requires a little bit of analysis.

The Code starts with a general rule that taxes are not dischargeable.  See 11 U.S.C. § 523(a)(1).

However, taxes may be dischargeable if three tests can be met.  Those tests are summarized as follows:

  1. The 3-year test;
  2. The 2-year test; and
  3. The 240-day test.

3-year test

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Are You A Consumer Debtor Or A Business Debtor?

GREG MITCHELL - Are you a consumer debtor or a business debtor?

The issue of whether a debtor is a “consumer debtor” or a “business debtor” occasionally comes up in an individual debtor’s bankruptcy case.  First of all, why does it matter?  And the answer is that, in certain cases, this determination can make all the difference in determining whether the debtor can ultimately get a chapter 7 discharge.

The issue revolves around the “means test” in bankruptcy.  Simply put, the means test looks at a debtor’s income to determine whether that particular debtor’s income is above or below the “mean” income for other debtors in a similar situation – i.e., the same geographic region and the same number of dependents.

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Taxes and Bankruptcy: Taxes In Bankruptcy Case

Greg Mitchell - Taxes And Bankruptcy

In re Minor; 127 AFTR 2d 2021-XXXX (DC CA); Case No. 2:20-cv-03626 (DC, C.D. CA)

This case involves taxes in a bankruptcy case that were priority taxes under the Bankruptcy Code.

The Debtor in this case filed for Chapter 7 bankruptcy in May, 2013 and received a discharge in May, 2015.  In March, 2018, the IRS filed an amended proof of claim in the bankruptcy case for almost $26 million for unpaid federal income taxes owed by Minor for tax years 2007, 2008, 2009, and 2011 (the “IRS Claim”).  The IRS Claim consisted of a secured claim of $24,857,210.48, a priority claim of $997,869.07, and an unsecured claim of $61,398.90.

The California Franchise Tax Board (“FTB”) also filed its own proof of claim, the details of which were not relevant for purposes of this case.  What was relevant was that the bankruptcy trustee did not have enough funds to pay both the IRS and the FTB claims in full.  Therefore, the bankruptcy trustee (“Trustee”), the IRS, and the FTB entered into a stipulation regarding the division of available funds (the “Stipulation”).

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Bankruptcy Exemptions, Pension Plans, And Section 409A

Bankruptcy Exemptions, Pension Plans, And Section 409A

This post covers the recent case of In re O’Malley, 127 AFTR 2d 2021-XXXX (DC IL) (March 2, 2021).

In this case, the Debtor failed to disclose a retirement plan in his initial bankruptcy schedules in a case originally filed in March, 2013.  At the creditor meeting, the Debtor disclosed the existence of an interest in a MetLife defined benefit pension plan, and committed to amending his schedules to include that interest.  Subsequently, the Debtor did in fact amend his schedules to list a single “Met Life Defined Benefit Pension Plan” of “Unknown” value and proceeded to claim 100% of its value as exempt from the estate under an Illinois law that protects pension benefits.  Following the conclusion of the creditor meeting, neither the Trustee nor any creditor objected to the exemption claimed by Mr. O’Malley for the pension plan disclosed in the amended schedules.

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James And Simona Quezada v. Internal Revenue Service – The Fifth Circuit And The Discharge Of Taxes In Bankruptcy

James And Simona Quezada v. Internal Revenue Service – The Fifth Circuit And The Discharge of Taxes in Bankruptcy

The dischargeability of and the ability to collect taxes by the IRS in a consumer bankruptcy case often turn on the issue of whether and when the taxpayer filed the relevant returns, thereby determining when the statute of limitations on assessment began to run.  In this case, the IRS assessed the taxpayer, James Quezada, in 2014 for tax deficiencies arising for tax years 2005-2008.  Quezada filed for bankruptcy in 2016.  The IRS filed a claim for the alleged 2005-2008 tax deficiency.  Over the taxpayer’s objection, the Bankruptcy Court held that the limitations period never began to run because Quezada never filed “the return,” and the District Court affirmed.  As a result, the taxes were deemed not dischargeable, and the IRS’s claim was upheld.

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