GENERAL TAX APPROACH
- Frequently Asked Questions (FAQ)
CALIFORNIA SALES TAX
DEBT - Frequently Asked Questions (FAQ)
Potential Action Items I Can Help You With:
(1) Attorney Client Privileged Tax Representation
(2) Accounting /Accountant's Numerical Account Analysis
(3) Tax Services for Amendment & Correction
(4)Tax Planning
(5) Help with your Tax Problems
(6) Providing IRS help
(7) Tax Debt & Tax Resolution
(8) Protection from IRS & IRS Harassment
(9) Analyze Assets and Debt Categories
(10) Investigate Government Records
(11) Compute Current Relief Possible
(12) Compute Projected Relief Over Time
(13) Action and/or Future Re-evaluation Plan
(14) Evaluation of Criminal Tax Potential Problems
(15) Evaluation of "Offer in Compromise" versus "Discharge Potential"
for purposes of eliminating tax debt
Tax Problems & Debt General Checklist:
I. Is there a
potential criminal problem?
A. Many people are so horrified by this
question that answer with disdain: "Of course NOT", "are you crazy?," "I AM NOT
A CRIMINAL" . The truth is that anyone in government can pick up a phone and
begin to attract attention to any citizen's difficulty, and characterize it as a
potential criminal problem. When the criminal suggestion arises, it is sometimes
too late to take certain actions that might assuage the suggestion. In talking
with me I will ask questions about what was done, who did it, and what
communications and actions were taken with the taxing authority. Both federal
and state (if applicable) have their own criminal tax statutes.
B. Short Checklist of Interaction Process with IRS
1. Have you acted
promptly from the very beginning to resolve the issue in an open way?
Early statement of position, even if aggressively pursued is much less likely to
be perceived as evasion.
2. Have you paid
anything toward the tax in controversy? In a recent case, a taxpayer
had numerous conversations with IRS, but never submitted any payment. At
trial, the defense tried to introduce evidence that "they were working with IRS
on a daily basis". The trial judge probably felt that the taxpayers were
giving the IRS "mere lip service" and ruled that prejudice in admitting evidence
of close contact between taxpayer and IRS outweighed any real relevence /
truthful portrayal, and excluded the evidence. It might be that if the
taxpayer had made a series of small payments, the likelihood of exclusion of
that evidence would have been greatly diminished.
3. Have you complied with
IRS requests for information and records? There is a provision that can
convert IRS unreasonable position into a damage award for the taxpayer,
providing that the taxpayer has cooperated and complied with IRS demands for
information. In addition, compliance with IRS requests will also put any
taxpayer into a positive light, lessen the likelihood that IRS will continue to
press an untenable position, and the lessen the chances of a Criminal
Investigation Divison Referral.
4. Have you checked your
IRS account, including 1099's W2's and promptly objected to any erroneous
submissions to IRS?
5. Does anyone else have
access to your records? Identity theft is a major source of fraud and you
might be the victim. A fraudster might use your record information to both
report an erroneous deduction payment and to change your address of record with
the IRS to prevent your being notified about the reported income resulting from
the fraudulent deduction.
6. How many people know
the specifics of fraudulent tax actions that have been performed, and to what
extent can they be discovered and called to testify in a federal tax evasion
case? In extreme cases, taxpayers have been known to brag about their tax
evasion & tax fraud activity on facebook.
7. How vulnerable is the
taxpayer to Indirect methods of proof and evidence, including:
(a) The NET WORTH method as applied to the taxpayer's assets;
(b) The BANK DEPOSITS method that is used to track income and
business profitability; and
(c)
The EXPENDITURES method which can indicate whether the taxpayer is spending more
than the taxpayer's income.
8. Spousal implications
for tax evasion can be serious. The continuum ranges at one end of the
spectrum where the spouse is totally in the dark and where the criminal spouse
hid both the money and the activity from an innocent / ignorant spouse to the
other end of the spectrum where the non-acting spouse knew of the evasion,
shared in the lifestyle made possible by the evasion and formed a conspiratorial
partnership with the evader to aid and abet the evader and possibly to cover up
the crime.
9. Deductions not taken
or reported is a newly added mitigation factor in sentencing added to the
guidelines as part of 2T1.1(c)(1) as providing some reduction in "tax
loss" for legitimate deductions not taken as part of the evasion scheme.
The added limitation that such deduction related reduction in tax loss should
not be reduced to the extent that the deduction item relates to payments to
3rd parties"in a manner that encouraged or facilitated a separate violation of
law, such as "under the table payments" or "expenses to obstruct justice." The
limitation is an arguable judgement call, and no exhaustive list of the
mechanisms that could or should be characterized as limiting the reduction in
the deduction or reduction in the tax loss has been reliably formulated.
10. Taxpayers should also avoid a
"Klein Conspiracy" (UNITED STATES v. KLEIN, 247 F.2d 908 (2d Cir. 1957) which
was a judicially expanded doctrine operating off of 18 U.S.C. Sec. 371 which goes
beyond traditional fraud (taking through deceit), but goes beyond this standard
to include "acts of concealment of income" that constituted an effort to
interfere with a government tax collection program. What this means is that
any conspiratorial act that tends to lower the probability of detection of
evason, or which resists government discovery of the fact of evasion, can easily
form a completed crime, even if the government lacks the evidence to
successfully convict upon the underlying evasion crime.
11. As in point 10 above, there
can be no conspiracy where a single taxpayer acts alone. Even a spouse,
friend or someone distal from the main activity can provide the second person
needed to complete a conspiratorial act. Tax return preparation and filing are
thus activities best confined to sole persons that single file.
12. Chances of mail and wire
fraud, either directly related to activities of the evasion or related to
peripheral charges can be reduced by not using internet/telephone/mails etc. in
a taxpayer's communications and transmissions. Weaning from these types of
communications will cause the taxpayer to be more cognizant of the import of
each communication. Conversely, if the only transmissions that are
delivered directly and without the use of internet/telephone/mails etc.,
it could help to identify a common scheme or plan or inference that the only
transmission in person were the fraudulent ones, thus raising a presumption that
fraud is intended when internet/telephone/mails etc. are avoided.
13. Consider the danger of
ancillary fraudulent activity and its possibility of being charged along with
the crime of evasion. Separate charges can be piled on to the extent
making it onerous to defend a federal district court case. Crimes that are
ancillary to tax evasion include: money laundering, failure to keep records,
conspiracy (mentioned earlier), mail fraud, wire fraud, false/fraudulent claims,
aiding and abetting, bankruptcy fraud, and perjury, to name a limited few.
14. Take to account the running of
the statute of limitations (longest is 6 years for criminal tax matters), and
that periods of absence as a fugitive from justice as defined at 18 U.S.C. Sec. 3290
tolls this statute.
C. Short Checklist of Fraudulent actions
before discovery.
1. Underreporting income
is far worse than attempting to take excessive deductions. Failure to report
income is more severe as an evasion activity than taking excessive deductions
because deductions better enable the government to challenge the taxpayers
position.
2. Creation of false business expenses &
invoices, if discovered, is perhaps the most powerful evidence of fraud. First,
it shows additional effort to evade, much beyond simple omission. Second, it can
draw additional jail time for "sophisticated means" under the sentencing
guidelines that will result in a longer sentence.
3.
Use of false identity of others (with or without their knowledge) to further the
evasion. This includes 1099's to taxpayers to enable deduction, especially where
it is known that the putative 1099 payee was not in a position to be alerted
about the payment. An example may include the listing of a taxpayer that just
relocated to another state or country, especially where the postal forwarding
order has expired, so that the taxpayer will not receive early and actual notice
of adjustments to the victim's income. Identity theft can bring a mandatory 2
year sentencing enhancement upon conviction. Multiple counts will result in more
than a 2 year enhancement.
4. Other deliberate acts
include false social security number(s), false claiming of dependency
deductions, keeping more than one set of accounting statements, use of tax
evasion software to generate reduced income accounting statements, destruction
of records especially after records have been seen by others, hiding assets in
bank accounts and particularly bank accounts created to enhance
non-discoverability, and making false, under oath, representations to IRS and in
particular detailed schedules associated with an application for an
Offers-In-Compromise.
II.
If there has been a serious error on a tax return in the past, will it be
possible to contact IRS to rectify it before it is first discovered by IRS?
A. IRS has for years operated under a "first
contact rule" where IRS will generally refrain from referring a case for
criminal prosecution where IRS is contacted first. This generally
includes:
1. Coming forward to rectify a filing
error.
2. Coming forward to file after a long
period of successive failures to file.
III. Are you willing to prepare an
excessive level of proof to justify your position?
A. IRS typically backs down in the face of
overwhelming proof of a justified position. Conversely, where the taxpayer
supplies scant information, especially unwillingly, it merely encourages further
IRS inquisition. Supplying more-than-ample pro-taxpayer evidence early is
more likely to resolve the dispute in the taxpayer's favor.
B. The taxpayer may find that the IRS
inquiry comes at a time where there is an uneven and perhaps incomplete record.
Tossing a disorganized record at the IRS encourages a more likely finding of
inconsistency and encourages more and deeper investigation. The
completeness of the record and summary supplied to IRS is important.
Half-hearted attempts to throw records at IRS in the hopes that their
investigation will be satiated are fruitless. Time and effort should
be spent to help insure that IRS will find the record adequate and persuasive.
IV. What is a lateral audit based upon
being a client of the a particular preparer?
(A) As has been stated by the Office of
Professional Responsibility, one type of audit is tax preparer based, in that
where a particular problem is found with a preparer's method, the IRS knows it
is highly likely that that preparer's other clients have the same type of
problem. Where the problem is not a de minimis error resulting in only a
few dollars, the IRS is finding it advantageous to audit other clients of the
preparer to look for the same problem.
(B) Where a Taxpayer is sold a bill of
goods by the preparer, that client has a much higher likelihood of being audited
because the Taxpayer is then not a single taxpayer with random odds of being
selected for audit, but instead the Taxpayer is a member of a large group that
will have concomitantly large odds of having the error or penalty discovered and
result in a nearly 100% probability of audit based only upon that Taxpayer's
having had a return prepared by an aggressive preparer.
(C) This factor should indicate to a
Taxpayer that it is better to do his or her own taxes rather than have them
processed by a preparer, and including this and other reasons:
(a) There will
be no "preparer commonality" to trigger an audit simply because of the preparer
chosen by Taxpayer.
(b) The loss of privilege in disclosure to a preparer
puts the taxpayer at higher risk of having that preparer testify against the
taxpayer for ANY reason.
(c) Tax preparers are subject to more tax
preparer penalties than ever before and high volume tax preparers are not likely
to take an aggressive position because (1) the liability from having a dragnet
cast over their clients and a magnified look at them by the Office of
Professional Responsibility, and (2) it is certain that preparers want to avoid
preparer penalties at all costs.
(d) Criminal potential for any tax
filing is reduced when you eliminate one-half of any potential two-party
conspiracy under 18 U.S.C. 371. If your tax preparer is going to prison,
you can bet that the preparer is cooperating and that means blowing the whilstle
on the taxpayer (and maybe embellishing the illegality of your conversation with
the preparer "more than just a little").
V. If you have not done so already,
read the statutes in the Disclaimer Page.
General Tax Approach
1. Why have a TAX DEBT TROUBLE - FAQ?
2. How do people get into trouble owing money
to the IRS?
3. What can government do to a taxpayer when
it believes that it is owed tax?
4. What can be done to 'fix' the trouble and
return to normalcy?
1. Why have a TAX DEBT TROUBLE - FAQ?
A large volume is written about tax debt and
the tax system, but when you are trying to run your life and this GIANT
DISRUPTION hits, the panic and short time line prevents a normal taxpayer
ability to explore the literature. Conversely, a FAQ list of questions is
expected to be big and so I will attempt to branch into other FAQ lists to cover
the topic.
2. How do people get into trouble owing money
to the IRS?
(a) Some citizens
have not filed taxes in years. Sometimes it starts by a combination of
simply delaying the filing of federal taxes (26
U.S.C.), combined with
moving, a life change or other circumstance combined with having fallen off the
IRS consciousness grid. After 2 or 3 years of hearing nothing from the IRS, its
tempting to simply keep going.
(b) Some citizens erroneously believe that
failure to pay tax and failure to file are integral. Where a citizen has no
money to pay the tax, it is very common to simply start delaying and then ending
up not filing taxes. This is because some taxpayers equate not paying with not
filing. These citizens combine the erroneous belief that its just as bad not to
file as it is not to pay, and thus begin the habit / choice of cessation of
filing returns.
(c) Some file their
taxes on time but through circumstances beyond control can�t pay. Once the
penalties and interest
begin to roll the amount owing can double in just a few years. Meanwhile, the
IRS makes efforts to collect, including levying bank accounts, garnishing wages
and making life very difficult.(d) Some citizens were unfortunate enough to
pick tax fraudster to do their taxes. Citizens often never ask if what may be
too good to be true is really not true. The lure of a few hundred or a few
thousand dollars in refunds may have to be repaid in trip licate in the 1 or 2
years it takes for the IRS to catch up. Catching up sometimes involves
statistical treatments
on return data, a correlation with other audited tax returns, or a confession
from a repentant preparer, perhaps on his way to jail.
(e) Some citizens
were the victim of the crimes of others. This can include
identity thieves,
payroll services who fail to remit payroll money to the government, sales tax
fraudsters, investment schemers, confidence scammers, blackmail thieves, spousal
sabotage, and criminal business partners. The closer the privity relationship,
the more difficult it is to escape being victimized by others. Unraveling
injustice before the tax authority is separate from whole justice and often the
only possible partial remedy the victim might have.
(f) Some citizens
can easily run afoul of rules and statutes relating to foreign interactions.
After 911, the government started clamping down on foreign transactions (F-BAR).
Along with Al Qaeda, the IRS has made it harder on foreign investors, immigrants
who have an overseas financial connection, U.S. citizens who inherit from
overseas, and U.S. citizens and residents who may have had offshore assets for
many years. As the IRS has attempted to go from --zero to 60-- in its attempt to
bring reporting into the ambit of perfunctory tax filing experience, not
everyone has kept up. This has resulted in inadvertent noncompliance issues,
significant penalties, interference with ability to discharge these types of
penalty under bankruptcy (penalty
or regular tax? -- Lately
this seems to be tilting toward nondischargeability despite the criminal-like
clear and convincing evidence standard), and potential criminal liability for
FBAR violations.
3. What can government do to a taxpayer when
it believes that it is owed tax?
(a) Government can
levy bank accounts.
Taxpayers can wake up to find their bank accounts drained. This is especially
dangerous for taxpayers who are self insured against sickness.
(b) Government can
garnish
(levy on) wages of both the taxpayer and
spouse.
Taxpayers can find themselves working to receive pennies on the dollars they
earn after their paychecks are garnished.
(c) Government can
lien taxpayer assets.
In addition to the general, automatic lien which accompanies an assessed tax,
Taxpayers can find their assets, especially real property, liened and unable to
sell them without government getting paid first.(d) Government can interfere with
a taxpayers
business. Sole proprietor businesses can be taken in the same manner as
taxpayer personal assets. Physical levy and sale of a business is a
possibility. For a taxpayer business entity, and in recent months, the IRS has
stepped up its allegations of --alter ego-- to reach assets of related entities.
4. What can be done to fix the trouble and
return to normalcy?(a) Consider which position to take which will
help the taxpayer meet their goals. Each taxpayer is different. Some are more
willing to compromise and others will fight all the way to the Supreme Court.
(b) Consider
submitting all
tax returns
both to start the statutes of limitation running. In addition, and
especially where returns were not previously filed, taxpayers are not given
credit for any deductions and the filing of tax returns for all year not filed
gives a first introduction of deductions and may severely reduce amounts owing.
(c) Presenting taxpayer situations early
and accurately where warranted. Sometimes cooperation is called for and other
times it is not. Analyzing the problem fully may be the best start on deciding
upon whether to fight or explain.(d) Give due consideration to the line between
criminal and civil liability. If establishing tax payer is a victim runs the
risk of admitting to a previous involvement in a crime, it may affect the
decision to settle / pay the tax.
(e) Government will
settle tax debt but only after complete disclosure of assets & earnings.
Offer-in-Compromise
application gives government a detailed road map into a taxpayers finances,
assets & bank accounts. Where a taxpayer has sufficient assets, the government
is reluctant to settle for less than the full amount.
(f) Consider that
some actions toll
bankruptcy
"discharge of tax debt" threshold periods.
Offer-in-Compromise,
appeals, &
collection due process hearings
toll bankruptcy discharge threshold periods and that an analysis should include
computation of the results obtainable this year and in future years.
(g) Consider the effect of ALL assets, and ALL
liabilities along with tax liability. In many cases it makes no point to
consider bankruptcy when there is very little non-tax debt and where there are
significant assets that would be liquidated to satisfy taxes in any event.
(h) Consider
bankruptcy
dischargeable
years as possibly subject to greater discount. IRS must generally always have a
motivation to provide any discount, and this can provide some discount unless
the IRS is certain that a bankruptcy would not be possible because of too many
assets to be lost.
(i) Consider
progression of time in an integrated plan. Some taxpayers may be near the
end of the
IRS collection statute,
while others may have tax liabilities that may be bankruptcy dischargeable in
subsequent years. Current distress caused by all creditors should be evaluated.
Where control can be exerted over any payments, control the allocation of
payments to the years most advantageous to the taxpayer, and to creditors in
terms of importance and need; and considering the possibility that some
transfers can be reversed in bankruptcy if made within 90 days.
(j) If an IRS
payment plan (installment
agreement) is considered,
scrutinize it realistically. Setting up and failing in maintaining a payment
plan can produce adverse government action, as the IRS will believe that you are
just messing about and are applying for payment plans to prevent ever having to
pay. If IRS perceives that you are entering into plans only to stave off paying,
IRS collection efforts may increase. In some cases a self controlled
unilateral payment play may have some benefits.
(k) Consider
lien subordination
where sale of liened asset is desired. If the sale of a liened asset can be used
to pay off some taxes, the IRS will allow taxpayers to apply to have IRS
subordinate or move down the priority of the IRS lien to facilitate sale of the
real property asset.(l) Consider arrangements to pay. For
wage earners and homeowners, an "official" IRS payment plan may be required.
Self employed individuals or others who are less in risk of government
collection action may consider setting up a self-repayment plan, preferably with
payments as level as possible. A consistent record of payment may be one of the
best indicia of lack of intent to evade tax.
(m) Consider that
any action taken federally will be
communicated to the state.
Taxpayers are required to notify the state and the state will be notified
quickly in any event. Depending upon whether the state tax amounts owing are
larger or smaller than federal, it may be desirable to pay the state off first.
(n) Hire a tax
professional familiar with the
bankruptcy
rules to give a
complete picture. Although it would be psychologically relaxing to dump the
problem off to your tax professional, the tax debtor should remain closely
involved with decisions on how to attack and fix their own tax debt problems.
Tax debt trouble is one of the most severe problems to be faced in life and
following the path to repair will provide insight as to how to avoid such tax
debt problems in future.
RIDDING TAX DEBT
Overview
Aside from the obvious expedient of
full payment, there are three main ways to eliminate a tax debt. The first is to
establish, at the earliest possible moment, that the taxpayer does not owe the
tax. The other two alternatives involve debt relief through inability to pay.
One of the two alternatives is to establish to the IRS satisfaction that there
is an inability to pay and a low likelihood of ability to pay in future, known
as an Offer-in-Compromise. The second of he latter two alternatives is a filing
in bankruptcy court that may also under some circumstances involve a late
determination that the taxpayer does not owe the tax.
I. Is there a potential criminal problem?
A. Many
people are so horrified by this question that answer with disdain: "Of course
NOT", "are you crazy?," "I AM NOT A CRIMINAL" . The truth is that anyone in
government can pick up a phone and begin to attract attention to any citizen's
problem, and characterize it as a potential criminal problem. When the criminal
suggestion arises, it is sometimes too late to take certain actions that might
assuage the suggestion. In talking with me I will ask questions about what was
done, who did it, and what communications and actions were taken with the taxing
authority. Both federal and state (if applicable) have their own criminal tax
statutes. Later entries to this FAQ outline will include checklists and factors.
B. On the
federal side, many signatures are administratively needed in order to start a
criminal tax evasion prosecution. My best understanding of the likelihood of a
tax prosecution is a "utility frontier" that is a total combination of amount
owing plus a celebrity factor as a threshold limit. A celebrity might be
prosecuted for $40,000 owing and evaded, while a private citizen might be
prosecuted for less then $1,000,000 owing and evaded. You can never count on
these characterizations, as an overriding internal factor dealing with the
certainty of evidence can't be discovered until after the prosecution is over.
C. Action
taken to rid a taxpayer of tax debt require requests and submissions to be under
oath. Any lack of complete honesty in the request will bring the taxpayer
at perhaps the closest point in their life to criminal suspicion. That's
why its important to only consider taking action where the action is honest,
open and above reproach.
See Also:
Tax Evasion Cases 9th Cir.
II. Do you have few enough and right type of assets to meaningfully
benefit from the provisions of Title 26 or Title 11?
A. Fewer
Assets and the right type of assets can enable you to be successful in an
Offer-in-Compromise (Title 26) or Bankruptcy (Title 11) case intended to get rid
of tax debt. (Please note the required notice under Title 11 U.S.C. � 528
whenever the word "Bankruptcy" appears: "We are a debt relief agency. We help
people file for bankruptcy relief under the Bankruptcy Code". [whenever I am
actually hired to do this])*** Both Title 26 and Title 11 have various forms of
relief.
B.
Generally the more assets a taxpayer has, a greater percentage of those assets
will be used to pay the tax bill. Planning can affect the degree of this
outcome, but the general principal embodied in the generality is also generally
inescapable.
III. Differing scope / configuration of
relief as to Title 26 or Title 11?
A. Title 26
remedies tend to isolate only on tax debt and generally leave a taxpayer's other
debts untouched. Offer-in-Compromise will generally leave a taxpayers other
debts unaffected. Conversely, Title 11 operates to relieve other debts at the
time when tax debt is being discharged.
B. Title 11
can cause far-ranging effects on credit score, security clearances, hiring for
sensitive positions and can result in loss of employment (example: securities
brokers).
IV. Title
26 and Title 11's effect on each other.
A. Title 26
remedies can:
1. Toll the title 26 tax collection statute
via:
a. Offer-in-Compromise
b. Appeal
c. Action to Quash summons
d. Collection Due Process Hearing
e. Tax Court filing and trial
2. Toll the title 11 tax
dischargeability statutes.
B. Title 11
remedies can:
1. Toll the title 26 tax collection statute
2. Delay tax realization via
lowering of basis
3. Toll further availability of title 11
further remedies
4. Potentially Provide a late no-advance-pay
tax-court-like forum for tax liability
V. Balancing IRS
tolling periods. Take to account tolling from:
- the 90 day letter
- Petition for Tax Court + 60 days
- Appeals
- Collection Due Process Hearing application +
appeals
- Other
actions that prevent (even by their own rules) IRS collection
VI. What are your future prospects?
A. As an
example, what if you were expecting an inheritance in 3 months? If the
inheritance is enough to take care of your tax and non-tax debt, you may want to
do nothing. If it will not be enough, then when it occurs you may have momentary
discretionary control of it and may be able to exert that control over how the
money is disposed of. Your ability to have ANY discretion may be determined by
the duration and depth of the debt problem (and especially how you must act and
be treated if in the midst of actions under Titles 11 and 26) . Conversely, what
if you were expecting an inheritance in 2 years? The timing and likelihood of
the inheritance will likely determine whether you seek to take action under
Titles 11 and 26 at all.
B. If the
inability to pay the tax debt was a temporary state of affairs, the problem may
be gone once the temporary state of affairs has diminished. However, no matter
how much a taxpayer expects the problem to be temporary, it is always good to
plan for a scenario where the problem may not be temporary.
C. Events
which occur (and there can be many -- not just inheritance) while you are
pursuing action under Titles 11 and 26 can affect the outcome. Probability
prognostication is a poor tool to decide which action to take and the timing of
which action to take, but it may be the best tool you have.
VII. What are the special goals and
objectives you are trying to accomplish?
A.
Sometimes this question comes down to a point where a decision to either take
action or fail to take action is dominated by the special goal or an important
circumstance. Sometimes hard choices have to be made, and I help in sorting
those out into some form of organization to hopefully make it clearer what needs
to be done.
B. In other
cases, the question can be answered by evaluation and monitoring of the
taxpayers' total circumstance over time. At each point in time, the
circumstances /change. This occurs both through new circumstances and through
the aging of the old circumstances over time. Sometimes a set of evaluations
over time can enable the taxpayer to monitor the alternatives and to take
advantage of the best alternative at an advantageous time. Passage of time ages
tax debt for a given tax year and may move it from a non-dischargeable status to
a dischargeable status. Time can cause a diminution of assets.
VIII.
Trying to find out what really occurred
A. In the
Title 26 system, sometimes the IRS makes mistakes. A proposed assessment of
taxes may not have been sent to the correct address, or a filed tax return may
have gotten lost. Finding out what went on at IRS may be difficult, & require an
expenditure of time and money. When action under either and both of Title 26 and
Title 11 is taken before a complete examination is done, it may be too late to
un-do it when you later find out how much less severe the problem might have
been had you known of an IRS mis-step (especially if it causes them to start the
process over from scratch).
B. In the
Title 11 system, the papers you file with the government reflects what is known
at the time of filing and tends to "freeze-frame" many attributes as they were
on the day of filing. The focus then, should be on non-governmental records,
such as identifying and locating creditors? Moreover, benefit can be had from
determining a much larger pool of potential creditors by sifting through your
lifetime of contacts and transactions to build this list. Why? Because YOU don't
know where next week's creditor (who just discovered a reason for your liability
to them) will appear. There are many cases of contractors that seek Title 11
relief today, only to find out that the building they worked on 10 years ago
develops a problem 2 years from now and that the building client was not
included in the list of creditors. If they were not on the list of creditors,
that debt was not discharged. (The point is that if you are going to
"go-through" the pain of bankruptcy, why not exorcize ALL THE CREDITORS from
your life?)
IX. If you have not done so
already, read the statutes in the Disclaimer, above.
1. How is California
Sales Tax different than most sales taxes elsewhere?
(Assume an 8% sales tax for ease of
calculation.)
(a)
California has a reimbursement system where most sale events include:
-A first
step in which a $100 sale triggers a tax on the seller of $8
-A
reimbursement step in which the buyer "reimburses" seller $8 sales tax
-Result is
that seller keeps $100 and Board of Equalization gets $8.
(b) Main
effect of reimbursement is the CA Sales Tax is not a trust-fund tax:
-Non-trust-fund taxes are dischargeable in bankruptcy
-Reimbursement can cause personal liability under Rev&Tax Code
Sec. 6829
(c) Non
reimbursement Operation Example for a buyer $108 purchase:
-A first
step in which a $108 sale triggers a tax on the seller of $8.64
-Result is
that seller keeps $99.36 and Board of Equalization gets $8.64
-Result:
Seller loses $ 0.64, but avoids operation of Rev&Tax Code Sec6829
2. How does
Revenue & Tax Code Sec. 6829 work?
(a) Bestows
Personal liability of corporate officer for sales taxes upon the termination,
dissolution, or abandonment of the business of an entity.
(b) But
"only if the board can establish that the entity had included sales tax
reimbursement in the selling price of tangible personal property sold.
3. What can
I do to reduce my personal liability for sales tax?
(a) A
seller/importer can move product to an out-of-state distributor for final sale.
(b) Avoid
being sole proprietor having personal liability for sales in California.
(c) As per
1(c), for an entity, avoid sales tax reimbursement.
(d) As per
the teaching in "In the Matter of the Petition for Redetermination under the
Sales and Use Tax Law of HOSMER CHANDLER McKOON" (linked on PATENTAX.COM/links
page):
(i) a taxpayer may file personal
sales tax returns each quarter IN THAT TAXPAYER'S OWN NAME for which the entity
for which the taxpayer is responsible, in order to start a 3 year statute of
limitations running.
(ii) McKoon
holding emphasized that under Sec. 6829, the fact that sales tax returns were filed
for the entity only satisfies the entity's 3 year statute of limitations. The
statute of limitations does not inure to individuals responsible under Sec. 6829
based upon filings that the entity made.
(iii) The
risk in this technique is that it draws attention to a human, and that might
draw attention to an affiliated entity. If the entity is keeping up with its
sales tax returns and payments for at least three years before the entity starts
to run into trouble, it may enable the individual person filing the zero level
sales tax returns some probabilistic protection, based upon when the entity
stops business.
(e) From studying the Ilko (discussed
later) & McKoon cases (both linked on PATENTAX.COM/links page) the timing
elements are important. Only the dissolution, termination or abandonment of
business will trigger Sec. 6829.
However,
the timing of BOE actually "discovering" the cessation of business, and possibly
making a more rapid and reliably predictive under Sec. 6829 can be disastrously
inconvenient if not controlled. Under McKoon, if the individual's 3 year statute
has not yet run, business can be continued so that Sec. 6829 will not be triggered
until the individual's 3 year limitation statute has run. (Business owner
controls the timing on cessation of business)
4. What
about using bankruptcy if the taxpayer failed to file $0 returns?
For
bankruptcy, the fact and timing of assessment is critical. Because the debt is a
tax debt, the time periods for tax are generally applicable, namely the 3 year,
2 year and 240 days from assessment periods.
Sec. 6829 assessments are made upon individuals
that never had an obligation to file a sales tax return because it is a
derivative liability.
In the Wirick case it was established that a
human taxpayer cannot rely upon the actions of the entity in starting his own
statute of limitations.
However, Ilko, citing the reasoning of Wirick
and at the second paragraph after the paragraph citing Wirick, states: "Debtor
was not required to file a return". This would seem to eliminate the limitation
of Sec. 523(a)(1)(B).
However, nothing definitive has been
written on this, & at least two commentators believe that the safest course is
to make sure that a potential debtor files personal sales tax returns and waits
two years to make sure that BOE does not oppose the discharge based upon
Sec. 523(a)(1)(B).
5. What
about the Statutes of Limitation and the Criminal Problem?
(a) Rev & Tax Code Sec. 6487 sets the civil statutes of limitation at
"about" 3 years if a return is filed or 8 years if no return is filed.
(b) Rev & Tax Code
Sec. 7154 (General Sales & Use
Tax) criminal statute of limitation = Later of 5 years after commission of crime
or 2 years after discovery (Misdemeanor under 7153)(Felony under 7153.5. if the
amount of unreported tax liability aggregates twenty-five thousand dollars
($25,000) or more in any 12-consecutive-month period.
(c) The presence of the criminal statute
complicates matters. First, which act in the multi-year fact set marks the
"commission" of a crime? Were any steps taken to hide discoverability? Any
potential "bad actor" facts & acts can potentially cause the criminal statute to
loom far beyond the term of the civil limitations period. This factor may be the
major motivation for BOE to resist compromise as to sales tax.
(d) Differential Tolling. The civil
statutes and criminal statutes have "tolling" or "extention events" that are
different. Civil tax statutes typically toll when there is some impediment
to collection, either within the agency or federally. Criminal tax
statutes typically toll whenever the potential defendants are not present within
the state. So, its not just a matter of simply adding up days, months and
years since the event, but also in considering "when to stop counting and skip
to a point in time when you start counting again". This is what tolling is
all about.
6. ***If you have not done so already, read the
statutes in the Disclaimer
BANKRUPTCY WARNING AND INFORMATION LIST (FAQ)
(Still working on the Question/Outline portion of the FAQ)
The following is for information only and is
not to be relied upon in any specific case.
Introduction
I
formulated this list to reveal as many bankruptcy considerations as possible so
that readers could learn as much as possible. I'm tired of seeing all of the
FAQ's that "sell" the benefits of bankruptcy, as well as reading cases of people
"sweet-talked" into filing without knowing the many aspects. I also know that,
as in tax, many people simply don't want to think about the details because they
can't tolerate contemplation of their problems and deliberately or
subconsciously psychologically avert their thoughts from the details. I often
term it "laundry syndrome" where people simply desire an improved state in
future and want to "drop off" their laundry in an uninvolved way and return to
find it clean and pristine. The best results of any process, however, require a
high degree of thought and detailed interaction by the person with the problem
because only they know the problem in enough detail to help their advisor to do
an effective job.
This
warning & FAQ was formulated as a checklist to require clients to face up to a
level of knowledge and to elicit details that might otherwise be glossed over.
In addition, and because this FAQ was converted from a disclosure list it was
drafted from a viewpoint first to include a number of required duties which
spring from the 2005 BAPCPA act, including the definitions of 11 USC 101(12A) of
assisted person as one whose debts are primarily consumer debts and for whom the
value of nonexempt assets are less than $150,000. BAPCPA requires that an
assisted person receive a clear and conspicuous written notice which includes
the notice under 342(b)(1) of different chapters and generally how they are
different, as well as warnings on honesty, with the notice to be received within
3 days after first offering advice under 11 USC 527. BAPCPA imposes restriction
on debt relief agencies under 11 USC 526, and further requirements on debt
relief agencies under 11 USC 528. Second, this warning impresses upon a
prospective debtor many risks and considerations that must be taken to account
before filing a bankruptcy petition, and which should be contemplated and
considered by any debtor.
1.
Items to be gathered:
Tax returns (past 6 years to
paint a picture) and IRS transcript
Background report
Credit reports (experian,
equifax, etc)
Pre-filing credit counseling
certificate (ex: debtorcc.org, ~ $25)
Pay stubs / proof of Income
2.
If a Debtor wants to know how they appear from the outside, how they might
appear to a bankruptcy trustee, a self-background check can be performed
inexpensively. See:
A.
http://www.top10bestbackgroundcheck.com/
B.
http://www.directscreening.com/services.php
https://www.directscreening.com/order.php?type=4
C.
http://www.checkpeople.com/
https://www.checkpeople.com/sign-up/background-check
D.
http://www.backgroundcheckreviews.net/BackgroundCheckCompaniesList.asp
E.
https://www.peoplesmart.com/search-go1
https://www.peoplesmart.com/join
3.
Urgent filings should not be performed because the best advantage can be gained
with the judges by having all paper work well thought out and carefully
considered, including planning for bankruptcy timing and exploration, of timing
and tolling problems, all performed with active involvement of the debtor.
Debtors should be keen to show a whole, consistent file that will draw as few
objections as possible. Debtors should realize that effectiveness in the
bankruptcy process depends upon the attorney's and the debtor's reputation with
the judges. It is important to eliminate and minimize a record of dismissals
from partial filings, especially where case failure was due to documents that
debtors failed to supply. (Put another way, if the decision to file to save a
house was unimportant enough to put it off, ignore it, avoid it, maybe there is
a strong underlying reason not to do it).
4.
The 2021 Chapter 7 Government filing fee is $338, and that this does not
include any fees that might be paid to an attorney.
5.
Where tax debt is involved, and to be more certain before taking bankruptcy
action, a FOIA request to government may be the only way to determine the timing
of actions within IRS and that the timing and details of action within the IRS
may strongly affect and in some cases un-do and re-set government actions, and
that return of FOIA results can take several months and involve additional cost.
6. A
Bankruptcy filing provides exposure to a bankruptcy court system where creditors
may object to a discharge of your debt to that creditor, or may in some cases
object to your complete discharge as to all creditors. An action within the
bankruptcy court procedures is known as an ADVERSARY PROCEEDING and is separate
and apart from the bankruptcy filing itself, and also separate and apart from
the bankruptcy services of filing. ADVERSARY PROCEEDINGS are similar to complete
lawsuits, but are done in bankruptcy court, and they have an attorney cost
structure requiring from about $5000 to $15,000 in attorney fees on average. If
and when an adversary proceeding occurs, it may be possible to waive discharge
as to the creditor pressing the ADVERSARY PROCEEDING. Advantages in doing so may
include:
(a) saving court costs associated with the
ADVERSARY PROCEEDING,
(b) containing a potential "no discharge"
threat, &
(c) potential enablement of your case to
proceed to discharge as to the other creditors.
7. If the post-filing financial
management course is not taken and if the certificate is not provided to the
bankruptcy court, discharge will be denied and the bankruptcy filing may likely
be dismissed.
8.
Prior Bankruptcies that were dismissed may not show up in either a pacer search
nor an IRS transcript. Debtor must preferably produce any records on prior
bankruptcies to avoid a dangerous trap of being unable to get out of a chapter 7
bankruptcy filing.
9.
Grantor trusts owned by debtors are not separate and apart from Debtors estate
and must be listed along with other assets of Grantor / Debtor.
10.
Even California "spendthrift trusts" can be invaded to the extent of 25% of the
trust assets, to benefit Debtor's creditors.
11.
Conveyances into irrevocable trusts may typically not complete without:
(A) conveyance
(B) change of ownership
report (Form BOE-502-A, ASSR-70, OWN-70) (which can be
found online at:
http://assessor.lacounty.gov/extranet/list/form)
(C) Declaration of
Documentary Transfer Tax (which can be found online at:
http://www.lavote.net/recorder/PDFS/Declaration), and
(D) recordation.
12.
An individual taxpayer's pension plan account is excluded rather than exempted
from his bankruptcy estate. Accordingly, courts have concluded that:
(A)
IRS's tax lien continued to attach post-bankruptcy discharge and that IRS could
levy on the pension. (Gross, (CA 9 2/25/2014) 113 AFTR 2d Sec. 2014-529 The Court
of Appeals for the Ninth Circuit) (IRS Lien Rules as to excluded assets)
(B)
In a recent Supreme court case, inherited IRAs, were held not to be excluded
from the bankruptcy estate, and any inherited IRA is to be considered the same
as cash for planning purposes.
(C)
Generally, if a person liable for a tax does not pay after notice and demand, a
lien arises in favor of the U.S. on all of the person's property and rights to
property. (Code Sec. 6321) The lien must be recorded by the filing of a notice
of federal tax lien (NFTL) to be valid against certain persons. (Code Sec. 6323)
(D)
the bankruptcy estate includes all of the debtor's prepetition property and
rights to property except property excluded from the estate under 11 USC Sec. 541. 11
USC Sec. 541(c)(2), as interpreted in Patterson v. Shumate, (S Ct 1992) 504 U.S. 753,
permits a debtor to exclude an interest in an ERISA-qualified pension plan from
his bankruptcy estate.
13. A debtor must tell the truth about where
Debtor has lived and for how long, and should not attempt to get a better judge
by making up a new address as the case may be stricken. Even a false address
within the central district can cause a case to be stricken (Debtors have been
known to try and escape their Riverside district residency)
14.
There are about 19 different bankruptcy judges in the Central District of
California and each of the judges has their own disposition, their own opinion
on different aspects of bankruptcy law, AND Debtor understands that their case
may end up with a different result based upon which judge is assigned to
Debtor's case.
15.
It can be helpful to hire a bankruptcy attorney to spend time with you and
answer questions and without my performing a bankruptcy filing. This may be
important where you want to ask confidential questions and receive frank
answers. Why? You generally waive attorney-client privilege for any attorney that files
your bankruptcy. You understand that after being told certain facts, that IF the
attorney that was told those facts files a bankruptcy petition that ALL
PRIVILEGE between attorney and client are lost, meaning that a judge can call
the attorney to TESTIFY AGAINST THE DEBTOR!! (see my outline for Loss of
Privilege based upon making a government filing (tax and bankruptcy).
16.
If you hire a bankruptcy attorney to file your bankruptcy knowing that there
will be no attorney-client privilege between yourself and the attorney, you will
need to be honest about your situation because there is nothing to hide, but at
the same time circumspect in what you say. (If you tell your bankruptcy attorney
that you are filing because of some terrible / illegal act that is not otherwise
relevant to the bankruptcy filing {because you want a shoulder to cry on}
consider that you have announced the embarrassing fact to the world. You need to
tell your bankruptcy attorney everything relevant to filing your bankruptcy, but
not unrelated stuff.
17.
As by an inverse example, an attorney that has handled affairs of a particular
client for say 10 years SHOULD NOT file for bankruptcy for that long-time
client. All of that client's secrets, confidences and facts surrounding his
deals and financial affairs (i.e. privileged information) for that 10 years, will be lost upon the bankruptcy
filing by his long-time attorney. When the law mandates privilege loss (in this
case upon making a government filing) the perhaps best way to combat the effect is by
compartmentalization. The debtor is sent to a new attorney, not previously known
to the client. The prior attorney can help the debtor organize and prepare
for the relationship with the new attorney, but it is important that the new
bankruptcy attorney not form an unlimited knowledge sharing relationship (in either
direction) with the long-time attorney.
18.
In addition, if the long-time attorney renders "services in contemplation of or
in connection with the case", all of the transactions between the debtor and the
debtor's attorney may be called into question by the Bankruptcy court. Case:
John
F. ARENS v. Al BOUGHTON, Trustee (In Re: Daisy M. Prudhomme) (5th Cir 1995) The
Bankruptcy Code requires a debtor's attorney to report to the court compensation
paid or agreed to be paid for services rendered "in contemplation of or in
connection with the case, if such payment or agreement was made after one year
before the date of the filing of the petition." 11 U.S.C. Sec. 329(a).
19.
A good example of multiple (bankruptcy and non-bankruptcy) employment disaster
is seen in the case: In re Monument Auto Detail, Inc. (226 BR 219, 33 Bankr. 419
Bankr. Appellate Panel 9th Circuit, 1998). Recent cases also illustrate that a
bankruptcy attorney hired to file a bankruptcy should do only that function.
Although it is possible for attorneys to have multiple representation, the loss
of privilege and the jealous control that the Bankruptcy Courts typically exercise is a
good reason for isolating the bankruptcy role from all other roles of others. Personally
speaking, I would not file bankruptcy for a former patent or tax controversy
client.
20.
Debtor should also understand that generally there is no attorney-client
privilege for any aspect of a voluntary filing with the United States
Government, such as tax returns and bankruptcy filings, and Debtor should also
understand that upon the filing of a bankruptcy petition any attorney-client
privilege had previous to the filing of the bankruptcy petition will become
property & right of, and waivable by the Bankruptcy Trustee. Debtor understands
that the loss and usurpation of the attorney-client privilege by the trustee, as
well as criminal penalties for bankruptcy fraud, can combine to severely
restrict any ability for the debtor to benefit from lack of honesty (1) with
attorney actually hired to file the bankruptcy petition & (2) with the court in
verifying representations in the bankruptcy petition and schedules. IN FACT,
dishonesty can place the Debtor in jeopardy of loss of life, liberty and
property should such misrepresentations be made.
21.
Many attorneys attempt to do pre-filing payment plans in contemplation of
filing. This can be a problem where the timing of the filing is important.
Requiring all papers from the debtor to be ready before filing, and before the
attorney-client relationship begins can be good where the debtor delays in
getting the needed papers for submission don't create an impression that the
debtor is "under the care of" the attorney. Even better is a series of
agreements with one agreement for each task or set of tasks performed by the
attorney, especially with some method to agree that the task is complete.
22.
Requiring the debtor to have all documents ready, the retainer amounts ready and
to execute the bankruptcy papers shortly after executing the attorney-client
agreement hiring the attorney can be advantageous. In this manner, the debtor
knows that there is nor movement forward until and unless there is a present
ability to file. Perhaps this method will benefit the filing from a better
ability to file a wholistically balanced case and to avoid expensive dismissals
where filing might otherwise take place before the required information is
available.
23.
For many debtors, the automatic stay is an important advantage to filing
bankruptcy. However, there are many instances where a stay will not
operate to stop various actions, including:
A. Criminal Case
B. Family law marital
dissolution and child support
C. Paternity cases
D. Domestic support action
from non-estate property.
E. Government Police power in
non-monetary action cases.
F. Property Tax Liens
G. Many Other instances.
24.
A motion for damages for stay violations are different from a bankruptcy case
core filing and can form a case within a case (much like an adversary
proceeding). The emphasis of the law in this area is the cessation of the
violation of the stay and not a mechanism for enriching the debtor. The proof
required is that the violator knew about the stay and took deliberate action
that resulted in the violation.
25. Knowledge of prior bankruptcy filings are
extremely important. If Debtor has filed a prior bankruptcy but has forgotten
about it, or if it was filed under another name, it might now show up in the
records. Further, as to tax debt, if the debtor had filed a bankruptcy during
the running of the 3-year period and/or the 240-day period, (or 2 year period
under Putnam) but neglected to include the taxing entity in the schedules, the
fact of the bankruptcy may not appear on a tax transcript, but it may still have
a tolling effect if later discovered. Debtor's past bankruptcy filings must be
known with certainty and often the debtor is the best source of information on
past filings. (See: Putnam v. Internal Revenue Serv. (In re Putnam) (Bankr.
E.D.N.C., 2014) IN RE: TODD PERRY PUTNAM , DEBTOR TODD PERRY PUTNAM Plaintiff v.
INTERNAL REVENUE SERVICE Defendant. CASE NO. 10 - 09651 - 8 - SWH ADVERSARY
PROCEEDING NO. 12 - 00273 - 8 - SWH UNITED STATES BANKRUPTCY COURT EASTERN
DISTRICT OF NORTH CAROLINA RALEIGH DIVISION SIGNED: January 14, 2014. 5 rules
for tax discharge. U.S. District Court (E.D.N.C. Affirmed September 24, 2014)
CASE NO. 5:14-CV-118-D
26.
Any marriage of the debtor that occurs in a chapter 7 before filing can cause a
change in the scope of the automatic stay, especially in a community property
jurisdiction.
27.
If marriage occurs during a chapter 13 plan, the spouse's earning capacity will
likely increase (especially in a community property jurisdiction) and the
debtor's expenses may be lessened (especially in a community property
jurisdiction) and thus marriage may trigger the need to amend the plan so that
the DEBTOR WILL HAVE HIGHER PAYMENTS AND BE REQUIRED TO PAY MORE INTO THE PLAN.
It is better not to disturb a chapter 13 plan during its existence (if possible) and IT IS
BETTER NOT TO CHANGE MARITAL STATUS DURING THE CHAPTER 13 PLAN.
28.
Debtor is / will be advised by an assisting bankruptcy practitioner and under
the bankruptcy rules the not to incur more debt for any purpose (11 USC Sec. 526).
29.
Debtor is advised that the benefits and risks of filing for bankruptcy can vary
widely among individuals and their configuration of assets and liabilities and
that the optimum mix of benefits over liabilities may not be capable of being
known even after a lengthy analysis of Debtor's situation not to incur more debt
for any purpose (11 USC Sec. 526).
30.
Debtor should understand bankruptcy alternatives & which chapter to file. For
each chapter creditors have the right to file "claims" which identify the amount
of money owed and the documents supporting the claim. The can also object to a
debtor's plan proposal, and in some situations file a written request (motion)
for an order allowing the creditor to take back a residence, automobile, or
other property.
31.
CHAPTER 7 - Generally chapter 7 refers to a "liquidation" bankruptcy and can be
used by an individual to obtain a discharge of many debts without making
payments in the future. It may also be used by a business that wishes to
liquidate its business assets under the protection of the bankruptcy court. A
trustee is appointed to take control of certain asserts of the debtor and to
sell or distribute these assets for the benefit of creditors. A trustee can also
recover certain assets that have already been distributed and bring those assets
back into the bankruptcy estate.
32.
CHAPTER 11 - Generally Chapter 11 is often called the "reorganization chapter,"
and it allows a corporation, partnership, or individual to reorganize property
and debts without liquidating all assets. The basic goal is for a debtor to
retain control of property and present a "Plan of Reorganization" for repaying
creditors. If the creditors accept the Plan of Reorganization, and the court
approves the plan, a debtor is able to reorganize personal, financial, or
business affairs. A trustee may be appointed if a motion is filed with the court
and the court agrees that a trustee is needed to manage the affairs of the
debtor.
33.
CHAPTER 13 -- Generally chapter 13 refers to reorganization of debts by an
individual who has regular income and debts that are below certain statutory
limits. A Chapter 13 debtor proposes a "Chapter 13 Plan" which proposes a
repayment schedule. The plan essential identifies details for the debtor to
retain control of property, keeping up with current debts, and repay at least
some of the past due debts. A trustee is appointed to monitor activity in the
case and report to the court on whether or not the debtor is meeting
obligations. If a debtor is not meeting obligations, the trustee or a creditor
can ask the court to dismiss the bankruptcy case. If a debtor's income rises,
the trustee or a creditor can ask the court to increase the amounts paid to
creditors.
34.
There are rules for setting up retainer agreements and limitations on payment
from the bankrupt estate. In a chapter 7, practically everything the debtor owns
passes into the chapter 7 bankruptcy estate, and the creditors of the debtor
pre-filing are set. The filing of the bankruptcy is a pre-petition service. The
filing attorney, as to services relating the filing of the bankruptcy is a
pre-petition, pre-paid services provider and must not become a pre-petition
creditor. THEREFORE, a restriction on lawyers in chapter 7 practice is
that the earned fees have to be paid and earned pre-petition. It is generally
illegal for an attorney on a chapter 7 case to receive money post-petition
relating to pre-petition activities (preparing the schedules and filing the
case). The reasons for this rule are found in the following cases:
Brenda F. Hines v. Robert L. Gordon (IN RE HINES)198 B.R. 769 (BAP 9th Cir.
1996). An attorney cannot avoid the effect of sections 362 and 524 of the Code
by taking a postdated check, and any action to take post petition from a chapter
7 estate for preserving the estate is prohibited as a violation of the automatic
stay. 348(d) of the Bankruptcy Code, which reads: A claim against the estate or
the debtor that arises after the order for relief but before conversion in a
case that is converted under section 1112, 1208, or 1307 of this title, other
than a claim specified in section 503(b) of this title, shall be treated for all
purposes as if such claim had arisen immediately before the date of the filing
of the petition.
John
F. ARENS v. Al BOUGHTON, Trustee (In Re: Daisy M. Prudhomme) (5th Cir 1995) The
Bankruptcy Code requires a debtor's attorney to report to the court compensation
paid or agreed to be paid for services rendered "in contemplation of or in
connection with" the case, "if such payment or agreement was made after one year
before the date of the filing of the petition." 11 U.S.C. 329(a).
Chapter 7 attorneys must charge the full fee up front. In LAMIE v. UNITED STATES
TRUSTEE 540 U.S. 526 (2004) attorneys qualified as 327 professional persons,
that is, in a Chapter 7 context, are those employed by the trustee and approved
by the court. In Chapter 7, the trustees can engage attorneys, including
debtors' counsel, and allow courts to award them fees. "In the majority of
cases, the debtor's counsel will accept an individual or a joint consumer
chapter 7 case only after being paid a retainer that covers the `standard fee'
and the cost of filing the petition".
35.
Compensation for debtors' attorneys in Chapter 12 and 13 bankruptcies, for
example, is not much disturbed by 330 as a whole (limiting attorneys that
maintain the estate to be hired by the trustee). See, e. g., 11 U. S. C.
330(a)(4)(B) ("In a chapter 12 or chapter 13 case in which the debtor is an
individual, the court may allow reasonable compensation to the debtor's
attorney").
36.
It is understood that the bulk of the bankruptcy rules, prohibitions, ability to
harm the debtor, the ability to create forfeiture for the debtor, are based upon
conditions as they existed at the bankruptcy filing date. As such, adjusting the
time of filing by delaying to a later time, if done intelligently, can
significantly impact the bankruptcy process to the advantage of the debtor. This
is sometimes part of "pre-bankruptcy planning."
37.
Chapter 7 & Means Test: The means test is for consumer debtors; if more than 50%
of your debt is business, you need not take the means test. Debt of taxes owed
is business debt, even if you are not in business.
38.
Explanation of Exempt v. Nonexempt property. An Exemption amount is an amount,
that may, depending upon the category, be cash or asset value, that cannot
normally be taken by a non-government creditor. The exemptions generally do not
apply to federal government creditors ability to reach assets through liens.
Exemptions protect your property in Chapter 7 bankruptcy and help advantage the
calculation of monthly payments in a Chapter 13 bankruptcy.
39.
In order to claims a state's exemptions you must reside in that state for two
years prior to the bankruptcy filing date. If this two year residency rule is
not met, a place of predominant residence in a 180 day period before the 2-year
period applies will be used.
40.
Where the debtor is eligible for California exemptions, California's two state
systems (1) block the use of the federal bankruptcy exemptions and (2) provide
for two generally mutually statutory choices of exemption systems which a debtor
may elect. One provides more protection for home equity and the other provides a
greater amount of a wild card exemption. These two systems generally are:
(a) C.C.P. 703.140 &
following
(b) C.C.P. 704.010 &
following
41.
Generally, debtors with substantial home equity prefer C.C.P. 704.010 &
following, while debtors who have no real estate, but significant cash prefer
C.C.P. 703.140 & following. Both systems should be considered by the debtor.
42.
California does not allow married couples to double their exemptions, but
because California is a community property state, an advantage may be obtained
by having only one spouse file for bankruptcy. The inability to double
exemptions and the ability to protect community assets may militate toward
single spouse bankruptcy filing.
43.
Debtors should beware of the dollar amount of exemptions they find on the
internet. The ultimate authority for some exemptions in California is the
Judicial Council of California. The updated rule is listed at
http://www.courts.ca.gov/documents/ej156.pdf
. It is important that seekers not rely upon the above two statutes (C.C.P.
703.140 & following & (b) C.C.P. 704.010 & following) as they appear in
the California official statutes as they do not appear to be updated as often as
would be liked. There are other exemptions not listed in the above document,
including homestead and others, and including some other non-dollar based
exemptions.
44.
The trustee's role generally is to protect the interests of creditors, but
subject to the limitations of the bankruptcy rules. The trustee is generally not
the debtor's friend and should be viewed as somewhat of an adversary. If a
debtor lies to a trustee or hides property from a trustee, the outcome can range
from denial of discharge to criminal prosecution & felony prison.
45.
The automatic stay is an advantage to the bankrupt debtor, but note that (a)
creditors often do small things to violate the stay, (b) creditors can formally
seek relief from the automatic stay, and (c) the debtor should act to spread the
information about the stay to increase the knowledge of the debtor's creditors.
46.
What to Expect From Creditors' Meetings: Unless you have creditors to whom you
owe significant money, or simply an angry creditor, or both; it may be that the
first meeting of creditors is simply between you and the trustee. If you have
hidden assets, the trustee is likely to question you about facts that will probe
into any areas which might provoke a response that will uncover hidden assets.
Performing a self background check may help in refreshing a debtor's memory as
to the extent of debtor's assets, as well as reassuring the trustee where the
background check matches the schedules. Two comprehensive lists can be found
here:
http://www.justice.gov/ust/eo/private_trustee/library/chapter07/docs/ch7hb2012/Section_341%28a%29_Meeting_Questions.pdf
http://www.publiccounsel.org/tools/publications/files/341a-Meeting-English.pdf
47.
It is strongly advisable that a debtor should NOT FAIL TO ATTEND YOUR FIRST
SCHEDULED MEETING OF CREDITORS. Any attempt to re-schedule is typically viewed
as a suspicious circumstance by the U.S. Trustees, and they will very likely run
a more severe background check on debtors that re-schedule.
48.
Warning on loss of Control in a Chapter 7 filing regarding real estate: (1) The
Jacobsen 9th circuit case in combination with the In re Golden case means that
the protected nature of the homestead proceeds will likely lose their exempt
character beyond 6 months after the homestead real estate sale, either
pre-petition or post petition. This is because all that the trustee need do is
keep the case open for 6 months after the sale and assuming that no replacement
home in California can be found, the proceeds will no longer be exempt and the
trustee can take the sales proceeds and apply it for the benefit of creditors.
It may be advisable to complete any sale of the homestead residence at least 6
months before filing for bankruptcy.
49. Loss of Control in a Chapter 7 filing
regarding real estate: (2) Previous homestead exemptions in California for real
estate $75,000 for a single person, $100,000 for a married or head of
household person, or $175,000 for:
(a) a 65 year old person, or
(b) mentally disabled person,
or
(c) 55 year old single person
with income of less than $25,000 or (d) a married couple with income of less
than $35,000)). Current changes have raised homestead to an amount that is
dependent upon the median home cost/value and there has not been enough time
since the 1/1/2021 effective date to get significant case law guidance on the
complexities as applied to different cirumstances and principles.
The maximum $600,000 may still be generally quite small
for many urban cases. Replacement residence, even as compared to the cost of even modest California
replacement real estate, may be difficult. It is the difficulty of finding nearby replacement
property within the magnitude of the proceeds, AND the limitations of being
under an active bankruptcy (court's permission needed) that can inhibit the
ability to protect exemption proceeds from sale of a homestead. Therefore in
view of the (1) loss of control in the prior paragraph and (2) the intrinsic
difficult of completing the replacement property transaction described in this
paragraph, it is STRONGLY urged that any owned real estate that is proposed to
be sold should be sold such that the completion date of the sale be accomplished
as far in advance of the bankruptcy filing date as possible, preferably no less
than a year (and preferably several years) if fraudulent transfer might become
an issue.
50.
Loss of Control in a Chapter 7 filing regarding real estate: (3) Since late 2013
there have been rising values in real estate, such that there is an increased
probability that the trustee will seek to sell a bankrupt's house from
underneath them as equity in excess of the sum of the exemption and the mortgage
begins to become apparent. This factor may not be strictly the foregoing
mathematical relationship as there may be carve-outs in the form of a guaranteed
payment of $5000 or $10,000 from the bank and in favor of the trustee even where
equity in excess of exemption and the mortgage is zero. (See: In re KVN
CORPORATION, INC., BAP No. NC-13-1318-JuKuD Bk. No. 13-10477 (LINDA S. GREEN,
Chapter 7 Trustee, Appellant.) Carve Outs are Permitted
http://cdn.ca9.uscourts.gov/datastore/bap/2014/07/30/KVN-13-1318_opinion.pdf
Combining the factor in this paragraph with the Jacobson factor may indicate
that a trustee may force a sale both to get a carve-out, AND THEN to wait and
see if the exemption proceeds are re-invested withing the six month time period
before they lose their exempt status. The bottom line is that a bankrupt should
never feel comfortable filing for chapter 7 unless the mortgage is very
significantly underwater.
51.
Although there is some homestead protection under bankruptcy filing conditions,
it is best to file a homestead declaration with the county recorder as soon as
possible to give the homestead priority over judicial liens AND to protect the
proceeds in a VOLUNTARY sale for six months.
C.C.P. 704.800 requires that under conditions
of a forced sale of a homestead, that it should receive a bid in excess of the
homestead exemption and all liens on the property in order to be sold. However
the proof of the priority of the homestead requires a showing that the homestead
laimant resided on the property at the time that a judicial lien attached. The
filing of a homestead declaration can be used as proof of the time of residence
and has other advantages.
Note, however, that neither the automatic exemption nor the declared homestead
apply to a property mortgage or any other voluntary lien secured by real
property.
52. It is understood that there are
non-bankruptcy solutions to debt problems, such as (1) assignment for the
benefit of creditors, (2) negotiating a work-out of your debt, and (3) an
Offer-In-Compromise for IRS tax debts.
53.
It is also understood and warned about the criminally incriminating effect
relating to filing a false bankruptcy or a false offer-In-Compromise for IRS
debts.
54. Under the recent Putnam case, tolling of
the 2-year period as to the timing of previously filed taxes may also apply, and
that IRS has evidenced an intent to follow this case.
55.
Lately, and perhaps to "get around" recent California procedural rules on
refinancing, some lenders are "freezing" the loan modification applications on
the not-so-proper grounds of "pending bankruptcy", and perhaps despite the
granting of a local motion "Debtor's Application for Order Confirming that Loan
Modification Discussion Will Not Violate Stay". Therefore, you should understand
that the bankruptcy might be used against you if you attempt to negotiate or ask
for anything from a real estate lender.
56.
Problems you may have with 3rd parties: Credit Reporting Agencies. No debtor who
goes through a bankruptcy escapes problems with credit reporting agencies.
Debtors will find that they may be slow to bring back your credit, that they may
report inaccurately, they may continue reporting an item as still owing even
though it is discharged in bankruptcy. Debtors should be prepared for these
types of problems to occur, and understand that it will require Debtor contact
to request that it be corrected or changed. Dealing with third parties and what
they will and will not do is not part of the district court bankruptcy process.
Once a bankruptcy is filed, all of your assets are controlled by the trustee.
Under most guidelines, bankruptcy attorney responsibilities are generally
required to be focussed upon the proceedings in the bankruptcy court. Matters
outside the bankruptcy court can be dealt with directly by the debtor.
57.
Another reason that you should not have a bankruptcy attorney perform matters
directly related to the bankruptcy filing is the loss of privilege that occurs
upon bankruptcy filing. This means that anyone that the bankruptcy attorney
contacts that is peripherally related to the filing may be forced by a later
court to expose facts, reasoning and logic the debtor may not want exposed.
(See: http://www.patentax.com/library/LOSPRIV5.pdf )
58.
Where a debtor owns real property subject to a mortgage interest, the bankruptcy
attorney should not become involved due to the risk that any part of the
attorney's service are considered to be pre-payment for handling a mortgage
"loan modification" task. It seems that the periphery which drew an abuse
conclusion has resulted in laws (California and some other states) to the effect
that ANY money paid to have anyone work on a task that effects the mortgage can
constitute a crime and can result in disbarment. Given this sizeable effect, as
well as the loss of privilege, bankruptcy attorneys would do well to stay out of
any dealings with debtor's bank issues other than advising them of the stay
(which the debtor should be doing in any event). (See:
http://www.patentax.com/library/LOSPRIV5.pdf )
59.
The Southern district of California had a Chapter 7 rights and responsibilities
agreement (also known as a RARA) that had set attorney responsibilities at:
(a). Meet with the debtor to
review the debtor's assets, liabilities, income and expenses.
(b) Analyze the debtor's
financial situation, and render advice to the debtor in determining whether to
file a petition in bankruptcy.
(c) Describe the purpose,
benefits, and costs of the Chapters the debtor may file, counsel the debtor
regarding the advisability of filing either a Chapter 7, 11 or 13 case, and
answer the debtor's questions.
(d) Advise the debtor of the
requirement to attend the Section 341(a) Meeting of Creditors, and instruct the
debtor as to the date, time and place of the meeting.
(e) Advise the debtor of the
necessity of maintaining liability, collision and comprehensive insurance on
vehicles securing loans or leases.
(f) Timely prepare, file and
serve, as required, the debtor's petition, schedules, Statement of Financial
Affairs, and any necessary amendments to Schedule C.
(g) Provide documents
pursuant to the Trustee Guidelines and any other information requested by the
Chapter 7 Trustee or the Office of the United States Trustee.
(h) Provide an executed copy
of the Rights and Responsibilities of Chapter 7 Debtors and their Attorneys to
the debtor.
(i) Appear and represent the
debtor at the Section 341(a) Meeting of Creditors, and any continued meeting,
except as further set out in Section II.
(j) File the Certificate of
Debtor Education if completed by the debtor and provided to the attorney before
the case is closed.
(k) Attorney shall have a
continuing obligation to assist the debtor by returning telephone calls,
answering questions and
reviewing and sending correspondence.
(l) Respond to and defend
objections to claim(s) of exemption arising from attorney error(s) in Schedule
C.
Note that the Central
District adopted a RARA in 2015:
https://www.cacb.uscourts.gov/sites/cacb/files/documents/forms/F3015-1.7RARA.pdf
60.
The Southern District Chapter 7 rights and responsibilities agreement (RARA)
had set out a list of services which are beyond the services to be performed in the
scope of a chapter 7 (and for which, and you agree, that it is preferable to
have a post-petition attorney-client fee agreement):
(a). Representation at any
continued meeting of creditors due to client's failure to appear or failure to
provide required documents or acceptable identification;
(b). Amendments, except that
no fee shall be charged for any amendment to Schedule C that may be required as
a result of attorney error;
(c). Opposing Motions for
Relief from Stay;
(d). Reaffirmation Agreements
and hearings on Reaffirmation Agreements;
(e). Redemption Motions and
hearings on Redemption Motions;
(f). Preparing, filing, or
objecting to Proof of Claims, when appropriate, and if applicable;
(g). Representation in a
Motion to Dismiss or Convert debtor's case;
(h). Motions to Reinstate or
Extend the Automatic Stay;
(i). Negotiations with
Chapter 7 Trustee in aid of resolving nonexempt asset, turnover or asset
administration issues.
61.
The Southern District of California Chapter 7 rights and responsibilities
agreements (RARA) had also set out a list of services which REQUIRE a post-petition
attorney-client fee agreement:
(a). Defense of Complaint to
Determine Non-Dischargeability of a Debt or filing Complaint to Determine
Dischargeability of Debt;
(b). Defense of a Complaint
objecting to discharge;
(c). Objections to Claim of
Exemption, except where an objection arises due to an error on Schedule C;
(d). Sheriff levy releases;
(e). Section 522(f) Lien
Avoidance Motions;
(f). Opposing a request for,
or appearing at a 2004 examination;
(g). All other Motions or
Applications in the case, including to Buy, Sell, or Refinance Real or other
Property;
(h). Motions or other
proceedings to enforce the automatic stay or discharge injunction;
(i). Filing or responding to
an appeal;
(j). An audit of the debtor's
case conducted by a contract auditor pursuant to 28 U.S.C. Section 586(f).
Note that the Central
District has no such RARA.
62.
The Southern District of California Chapter 7 rights and responsibilities
agreement (RARA) had also set out a list of responsibilities of the debtor:
(a). Fully disclose
everything you own, lease, or otherwise believe you have a right or interest in
prior to filing the case;
(b). List everyone to whom
you owe money, including your friends, relatives or someone you want to repay
after the bankruptcy is filed;
(c). Provide accurate and
complete financial information;
(d). Provide all requested
information and documentation in a timely manner, in accordance with the Chapter
7 Trustee Guidelines;
(e). Cooperate and
communicate with your [bankruptcy] attorney;
(f). Discuss the objectives
of the case with your attorney before you file;
(g). Keep the attorney
updated with any changes in contact information, including email address;
(h). Keep the attorney
updated on any and all collection activities by any creditor, including
lawsuits, judgments, garnishments, levies and executions on debtor's property;
(i). Keep the attorney
updated on any changes in the household income and expenses;
(j). Timely file all
statutorily required tax returns;
(k). Inform the attorney if
there are any pending lawsuits or rights to pursue any lawsuits;
(l). Appear at the Section
341(a) Meeting of Creditors, and any continued Meeting of Creditors;
(m). Bring proof of social
security number and government issued photo identification to the Section 341(a)
Meeting of Creditors;
(n). Provide date-of-filing
bank statements to the attorney no later than 7 days after filing of your case;
(o). Pay all required fees
prior to the filing of the case;
(p). Promptly pay all
required fees in the event post filing fees are incurred;
(q). Debtor must not direct,
compel or demand their attorney to take a legal position or oppose a motion in
violation of any Ethical Rule, any Rule of Professional Conduct, or Federal Rule
that is not well grounded in fact or law.
63.
Status as married or divorced is CRITICAL to the rights and process of
bankruptcy, and especially in a community property state. Where couples are not
married and live together as married, but are not, the assumption of community
property protection will be shattered. Likewise, when couples divorce and get
back together, but do not re-marry, the assumption of community property
protection will be shattered. Status as married or not married is virtually
impossible to verify as a couple may have been married in Switzerland and later
divorced in Nepal. THE EXACT TRUTHFUL DETAILS OF ALL MARRIAGE AND DIVORCE MUST
BE PROVIDED. Your attorney and the bankruptcy courts rely upon your correct
status. Not providing accurate information on your marital status could severely
damage a debtor's bankruptcy planning and render useless a bankruptcy attorney's
bankruptcy analysis. An attacking creditor who discovers a variance from what is
set forth in the bankruptcy petition can defeat the goals of a debtor's
bankruptcy.
64.
Small institutional utility creditors such as power, water, cable, telephone and
more have the right to shut off service and require expensive re-application
along with a punitive additional deposit if they are creditors at the time of
filing of the bankruptcy petition. It is up to the debtor(s) to pay all
utilities for several months in advance so that such utilities will not be
creditors at the time of filing of the bankruptcy petition. If they are not
creditors at the time of the bankruptcy filing, they will not be on the list of
creditors to be notified of the bankruptcy. Perhaps this action will reduce
disruptive and costly effects to the debtor.
65.
Some banks are notorious for "freezing" their accounts upon notification of the
filing of bankruptcy, possibly on the pretext of maintaining the account for the
bankruptcy case trustee. It is suggested that if a new bank account can be
opened with a $0 starting balance, it will have no standing as an asset, and it
can await having its deposits until just after the bankruptcy filing. In
addition to paying utilities in advance to avoid disturbance of accounts,
closing accounts and restarting accounts immediately after filing the bankruptcy
petition can give the debtor a more unfettered right to the funds already owned
by the debtor.
66.
A bank may administratively "freeze" your accounts. Bankruptcy code 553(a)
states that setoff rights are preserved, and although there may not be an
identifiable "official setoff", banks use the "uncertainty" of the arrival of
checks, or "the setoff it has in your account maintenance fee charge, or check
fees, and many more. Citizens Bank of Maryland v. Strumpf (94-1340), 516 U.S. 16
(1995). State right of setoff is respected under 553(a).
67.
Bank and Cash Funds. Especially as to the possibility that a bank account may be
frozen, it may be helpful to keep some assets as cash money for both personal
emergencies such as sufficient for an emergency room visit or for business
emergencies in order to keep the business operating. In the past, you may have
gotten so used to using a credit card for everything, both business and
personal, that you might continue to refrain from having a personal amount of
cash for emergencies. The keeping and tracking of the emergency fun may well
help with the process of keeping a keener attention toward cash flow. And what
about a broken leg just after a bankruptcy filing? Cash may be the only way to
get emergency, health preservation service.
68.
Bank Funds. A recent case (In Shapiro v. Henson (9th Cir. January 9, 2014))
indicates that the debtor may be held liable for the balance in a bank account
at the time of filing, even where the debtor considers the balance to be reduced
by checks written and not yet cleared. In a 9th circuit it was a case of first
impression it was established that the bankruptcy trustee's turnover power is
NOT restricted to recovering bankruptcy estate property (or its value) ONLY from
entities having CURRENT possession, custody, or control of such property at the
time the motion for turnover is filed. In Shapiro debtor had $6,955.19 in her
checking account. She wrote a number of checks, including one check to her
bankruptcy attorney such that her account would have only had, say $2000.00 in
it at the time of filing. In fact, on the day of filing, the debtor had
$6,955.19, and this was money far in excess of her exemptions which the trustee
demanded. The result was that none of the checks she wrote were proper, the
money paid to her bankruptcy attorney was required to be returned, and the
$6,955.19 (less a mere $800 exemption) was available to be paid to her creditors
and NOT to the persons to whom she wrote checks.
Now that this is firmly established 9th
circuit law:
(A)
debtors have a second incentive to drain their bank accounts at least a week or
two before filing bankruptcy, namely to keep an absolute control of their cash
on hand and to insure that anyone who is to be paid is
actually paid BEFORE the bankruptcy petition is filed, as well as
(B)
the need recited above, to close the account BEFORE the bankruptcy petition is
filed to keep it from being frozen for offset or other purposes, &
(C) and to open a new one the day after which
will provide some statistically certain evidence of the amount of cash held at
the day of bankruptcy filing.
Finally, Shapiro v. Henson stands for the proposition that leaving money in a
checking account amounts to a loss of control over that money upon the filing of
a bankruptcy case.
69.
Removal of bank account funds also reduces the chance of cross linking a loan
account with a car loan account, for example. It has been experienced that some
credit unions have cross collateralization accounts and require payoff of an
unsecured loan account before an automobile pink slip will be surrendered. This
becomes an issue in the "ride through" option where the debtor keeps up payments
on the vehicle, then pays it off, but where the pink slip will be withheld until
another non-automobile account is paid off. Debtors should check their banks or
credit unions for cross collateralization and move your personal loan accounts
to an institution different from your automobile account so that you will not
face this issue.
70.
There will be people who will refuse to do business with a bankrupt debtor /
debtor having a discharge. There are other people who believe that someone who
has just had a discharge makes for a good credit risk because they cannot have
their debts discharged again for some time.
71.
Debtors should also understand that having TOO MUCH TAX WITHHOLDING and which
RESULTS IN A TAX REFUND of more than $5 or $10 is foolish for the following
reasons:
(a) bankruptcy trustee may be
entitled to take the refunds either prorated in a chapter 7 or as they yearly
occur in a chapter 13 throughout the plan;
(b) a withholding level greater than needed
to meet the tax in any given year is a form of at-risk savings account where the
government account holder bank pays no interest or other benefit to the taxpayer
and
(c) the tax withholding money
withheld that is above and beyond that necessary to pay the taxes each year is
at-risk to be taken by other entities (IRS, BOE, FTB, EDD & many other federal
agencies) that can, under differing circumstances, levy on the withheld money.
72.
The general rule of 541(a)(5) imposing a 180-day limit outside of which excludes
property from the bankrupt estate does not apply to chapter 13 cases where the
inheritance occurs before the chapter 13 case is closed, dismissed or converted.
This is the holding of Dale v. Maney (In re Dale) (9th Cir BAP 2014)( AZ 13 1251
DpaKu) and debtor verifies that debtor understands that any actual inheritance
during a chapter 13 case becomes property of the bankrupt estate and will be
subject to being used to pay creditors .
73.
Debtor should have no foreign bank accounts for which an annual FBAR (Federal
Bank Account Regulations) report is required. If debtor has such a foreign bank
account, Debtor should warrant that debtor has filed the appropriate FBAR
reports form 114 annually for the past 7 years by June 30 of each year for bank
accounts in the prior tax years. Debtor should understand that if debtor has an
FBAR problem, that the filing of a bankruptcy petition will possibly trigger a
federal criminal investigation, and that debtor should consult a tax attorney
about the risks of making catch-up FBAR filings and perhaps make a better
informed decision about whether or not to file bankruptcy. This should be done
well in advance of the time when the decision to file bankruptcy is made. Since
FBAR borders so heavily on the criminal side of problems, the debtor should get
advice from a tax attorney that will not file the debtor's bankruptcy petition.
74.
Debtor should have no signatory authority over any bank account other than the
ones that the debtor ACTIVELY MAINTAINS for debtor's own accounts. Thus, debtor
has no signatory authority over bank accounts which are not the property of
debtor. Examples of signatory authority for accounts of others includes, but is
not limited to:
(1) debtor signatory
authority, alone or with others, over a decedent's estate;
(2) debtor signatory
authority, alone or with others, over a trust;
(3) debtor signatory
authority, alone or with others, over a retirement plan account;
(4) debtor signatory
authority, alone or with others, over a club or charity organization;
(5) many other different
examples.
75.
Debtor should not believe that any space on the bankruptcy petition that is left
blank or not addressed should be thought of as an "option not to answer". It may
be of help to debtor to complete every blank with some true indication and
perhaps completed blanks as "Not applicable etc," and marked N/A or similar.
76.
Debtor should understand that the sanctions that the bankruptcy court can impose
for misbehavior and lack of cooperation (which lack of cooperation may include
an improper assertion of attorney-client
privilege, 4th & 5th amendment privileges, another bases for noncooperation).
Sanctions may include and are not limited to:
(a) Monetary Fines;
(b) Dismissal of the
Bankruptcy case in chief;
(c) Directed verdicts in any
adversary proceedings;
(d) Civil and Criminal
Contempt of court;
(e) Denial of Discharge; and
(f) Refusal to dismiss the
case, or close the case, or refusal to reopen a closed case.
77. Debtor should understand that for the
most part, the filing of a bankruptcy petition is, in effect, a waiver of the
right against self-incrimination. 4th & 5th amendment privileges will likely
belong to the Bankruptcy Estate, and the Bankruptcy Estate is controlled by the
Bankruptcy Trustee. Further, the need to make substantial disclosures
(voluntarily or as ordered by the court) in bankruptcy regarding the debtor's
affairs, assets and liabilities WILL conflict with constitutional rights against
self-incrimination. The attorney has no standing to raise the Fifth Amendment
privilege on the client's behalf. [Fisher v. United States (1976) 425 US 391,
398, 96 S.Ct. 1569, 1574-1575; see In re Hunt(BC ND TX 1992) 153 BR 445, 452;
The Fifth Amendment's prohibition against testimonial compulsion from the
client; does not apply in a Bankruptcy case, and the attorney in a Bankruptcy
case can be made to testify against a Debtor.
78.
It is Debtor's responsibility to fully communicate the fact of the bankruptcy
filing to everyone from whom the Debtor desires to respect and comply with the
bankruptcy automatic stay. Debtor should further understand that an isolated,
inadvertent or accidental violation of the automatic stay will likely not meet
success in action before the bankruptcy court, and may not be worth the time and
effort for a single violation where there is no real damages. Debtor should also
understand that actions in violation of the automatic stay which are deliberate,
violations which occur on more than one occasion, and that create more than de
minimis discomfort for the debtor are the types of violations for which the
court may more likely award attorney fees for bringing and prosecuting a stay
violation action. This means that monies paid to attorney by debtor to prosecute
a violation of the automatic stay are at risk of not being awarded to Debtor
unless the bankruptcy court so rules. Further, the court is likely to rule that
a single, harmless violation of the stay will not be compensated.
79.
The filing of a bankruptcy petition, as well as prior filings of bankruptcy
petitions can drastically effect statutes of limitation regarding other rights
of debtor, such as a subsequent bankruptcy filing, as well as the tax collection
statute, and others.
80.
The filing of various tax actions, including appeals, due process hearing
requests, tax court petitions, appeals from tax court, appeals from circuit
court, and more, can affect the ability to discharge taxes in bankruptcy.
81.
Debtor should realize that the if the Internal Revenue Service has filed a
Substitute For Return (SFR) in any year in which the Debtor was late filing a
tax return, then taxes imposed to the extent of the magnitude of such SFR filing
and assessment will be nondischargeable for such year(s). It is understood that
this is extremely damaging since most SFR filings do not include a deduction /
cost of income production component and thus artificially raise the magnitude
under which monetary amounts may not be discharged. Debtor should also
understand that due to record keeping errors and the possibility of such errors
an SFR filing may not show up on the account transcripts and the only way to
maximize knowledge regarding an SFR is to do a Freedom of Information Act
request which may require weeks to get a response.
82.
Credit Score. Credit score is controlled and assigned to debtors by a third
party company. It is generally understood that: (1) Bankruptcy will damage,
lower, and denigrate your "score", (2) once the score is damaged, lowered, and
denigrated it is said that it tends to rise slowly over time but there is no guarantee that you
will be able to have an effect on it because it is controlled by companies and
forces beyond the debtors control and beyond the bankruptcy attorney's control,
(3) debtors are often preyed upon by companies offering "fix your credit" cards
that may charge greater than 50% of the credit they are extending.
83.
"assisted person"' means any person whose debts consist primarily of consumer
debts and the value of whose nonexempt property is less than $204,425 (as of
April 1, 2019) and that the magnitude of this amount will increase with
inflation after April 1, 2022.
84.
Debt forgiven in bankruptcy creates a duty to reduce tax basis in assets that
remain with the Debtor (if there are any), and is most applicable to real
property assets. This is the tax authority's way of triggering a corresponding
tax increase later on when the property is sold or given away (but a stepped-up
basis on death rules can still apply to potentially cause the reduction in basis
to have no effect).
85.
Conversion (or attempted conversion) of a case from a case under one chapter to
another can be blocked under some circumstances. If conversion is possible, it
generally does not effect a change in the date of the filing of the petition,
the commencement of the case, or the order for relief.
86.
Debtors should list ALL CLAIMS (and potential claims) and all prior debts(and
potential prior debts) in their bankruptcy regardless of the age of the debt,
whether the debt is to a close friend or family, or how old the debt is. A claim
is a right to payment, whether or not such right is reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed,
undisputed, legal, equitable, secured, or unsecured; or a right to an equitable
remedy for breach of performance if such breach gives rise to a right to
payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured,
or unsecured. In other words, any obligation that you owe to anyone, whether you
know how much money it involves or not, should cause you to list that person,
entity, company, in the bankruptcy petition and schedules, as having a claim.
87.
Further, although debtors may consider it to be a "bother" to rack your brain
and look years into the past for old debt, loans, and any and ALL dealings with
clients and customers, it would seem that if you were going to go through the
painful bankruptcy process that you should let it work to cleanse all past and
potential past dischargeable debts. In other cases there have been unknown debts
that were discovered later, which would have been part of the debtor's discharge
where the debt was listed on the schedules, and for service in the bankruptcy. In one
example, a contractor had performed work on many construction jobs over many
years. The contractor did not list all of his past clients on the basis that
there could have been "unknown" defects in his work. A few years after the
contractor's bankruptcy and final discharge, one of his former clients
discovered a defect in a construction job and filed a lawsuit against the
contractor for hundreds of thousands of dollars. The simple expedient of listing
former clients on the basis of potential undiscovered defects would have barred
this former client from bringing a lawsuit.
88.
EXAMPLES OF PAST IMPORTANT CLAIMS: Even if you are not a contractor, what if you
are an insurance agent? Did you list your current & former insureds? What if you are a
real estate broker? Did you list your current & former represented buyers and sellers?
What if you are a plumber? Did you list the current & former homeowners and commercial
companies with whom you did business? What about former girlfriends and
boyfriends? Former neighbors for whom you house-sat or kids you used to
baby-sit; banks where you used to work; clubs in which you were a member or
officer. If you are going to file bankruptcy anyway, you need to think of
it as an insurance policy where you are insured not based upon a class of
actions, but based upon a class of potential litigants. DIG DEEP to think
about everyone in your entire lifetime with whom you have had ANY dealings that
might be actionable. It would be nice to check one single box and have it cover
everyone in your life, but it doesn't work that way; it requires everyone to
have their one chance to object by learning about the bankruptcy case. If they
take no action after notification, they will usually be barred from bringing a
later action after you receive a discharge.
89.
In regard to the debtor's need to dig deep and list all potential claims, it is
understood that tax and bankruptcy are unpleasant topics and painful processes.
Debtor MUST overcome the psychological tendency to "dis" the debtor's
involvement in the process. The better prepared the debtor is, the less likely
will there be a surprise. When the debtor pays an attorney to help them and then
fails to consider all possibilities, all former creditors and former POTENTIAL
CREDITORS, the debtor fails to use the discharge to its full benefit. The debtor
is paying for a whole bankruptcy; why would the debtor leave potential festering
debts not subject to the discharge.
90. "Consumer debt'' means debt incurred by an individual primarily for a personal,
family, or household purpose, and that the means test is for debts which are
more than 50% "consumer debt". Tax Debt is considered to be non-consumer debt.
Thus, if >50% of your owings are due to tax debt, the means test may not apply.
91.
An approved list of credit counseling agency providers for the Central District
of California may be found at
https://www.justice.gov/ust/list-credit-counseling-agencies-approved-pursuant-11-usc-111
by selecting a convenient location. Where it is reasonably likely that the debtor will file bankruptcy
within 6 months, the debtor should take a credit counseling course and obtain
the certificate and get that part of the process out of the way. Some of what
might be learned in the debt counseling course may affect the debtor's decision
to file bankruptcy.
92.
Lien strip MUST have an appraisal prepared. Appraisals can range in cost from a
few hundred dollars to over ten thousand dollars. The high end appraisals
compare the three approaches of (1) cost approach (the buyer will not pay more
for a property than the buyer would pay to purchase an equivalent property, (2)
sales comparison approach (comparison of a properties characteristics with
characteristics of similar properties recently sold in similar transactions --
typically in the same area), and (3) income approach (financial valuation
including cash flows -- typically beginning at the rental value with and without
improvements). The chances of an appraisal being either rejected, held inferior
to an opposing party's appraisal, or held to be insufficient will depend upon
the extent to which all three approaches are fully explored.
93.
Detailed information as to where the debtor resides and how long the debtor has
resided at locations for the past several years is critical to:
(I) establishing whether
debtor can file for bankruptcy in the Central District of California, or some
other district, (in-district filing requires that the debtor has lived within
the federal judicial district for the majority of
the 180 days just prior to filing the bankruptcy case), and
(II) the set of property
exemptions available to debtor. California exemptions are typically available
if:
(a) Debtor has resided in
California continuously for the past 730 days before the projected petition
date, or,
(b) if (a) cannot be
established then the debtor must have has resided in California for the majority
of the 180 days just prior to such past 730 day period in which the debtor was
not continuously a California resident.
94.
Waiver of debtor's filing fee is possible where (1) Debtor has income of less
than 150% of the currently established federal poverty level & (2) the debtor is
unable to pay by installment agreement. (In 2020, the Annual Net Income for a
debtor of given household size in any of the contiguous 48 states is/was:
Family of 1 $19,140
Family of 2 $25,860
Family of 3 $32,580
Family of 4 $39,300
Family of 5 $46,020
Family of 6 $52,740
Family of 7 $59,560
Family of 8 $66,180 (Add
$4480 for each additional family member over 8)
95.
There is a "Next Friend" procedure for minor or incompetent debtors that
requires the designated "next friend" to meet with bankruptcy counsel, sign
retainer agreement (preferably both the bankrupt and next friend) and petition
documents and to also attend the 341(a) meetings. FRBP 1004.1.
96.
If the debtor is not incompetent, COURT APPROVAL is required even under a power
of attorney.
97.
A bankruptcy attorney may not sign the bankruptcy application for the debtor.
98.
Partnerships can file a chapter 7, 11, or 12; a joint venture is a partnership.
Dissolved partnerships are eligible. Partnership dissolution chapter 11's are
not allowed. See: In re C-TC 9th Ave. Partnership (2nd Cir 1997)113 F3d 1304,
1307-1309; Rutter 5:63
99.
FRAUDULENT TRANSFER is the transfer of debtor property in exchange for less than
adequate value in compensation. Any transfer done with fraudulent intent has a
possibility of being un-done under either state law or under bankruptcy statutes
and rules. The statute title "Uniform Fraudulent Conveyance Act" was replaced by
the statute title ""Uniform Voidable Transactions Act" and adopted individually
by states of the United States on decision of each state, as each state chooses
both adoption and effective date.
100.
It is understood that filing for a bankruptcy for an entity is likely to trigger
investigations by the trustee into the share holders and a mandated search for
fraudulent transfers, such that if the relationship between the entity and the
owners is not 100% squeaky clean and above reproach, it could even reach a point
where, depending upon the facts, it reaches criminal charges on the owners of
the entity. This is why bankruptcy for entities is not favored.
101.
Partnerships: It is understood that for a partnership bankruptcy, CA general
partners must ALL join. However an individual bankrupt partner normally loses
the right to participate in partnership management. A. Partner can file
involuntary case against partnership. A filed bankruptcy is a dissolution
bankruptcy unless surviving partners all agree upon another form.
102.
The ipso facto clause can be triggered by state law or partnership provision or
a contract.
103.
In California a dissolved corporation can (a) still wind up; (b) still prosecute
and defend actions; (c) still dispose of and convey property; (d) collect and
divide assets 5:95 & Cal Corporations Code 2010; 17354a (file to liquidate
only).
104.
Bankruptcy filing is not possible for corps having FEDERAL RECEIVERSHIPS.
105.
In California, an LLC is treated the same as a corporation for dissolution only.
Do not confuse the "disregarded status for U.S. tax"purposes as disregarded for
separate purpose as to bankruptcy. In California, an LLC is treated similarly as
a corporation for dissolution only.
106.
11 U.S.C. Sec.108(a) extends the statute of limitations for offensive plaintiff actions
against others WHICH HAVE NOT EXPIRED BY THE PETITION DATE, by the later of the
expiration or two years after the bankruptcy petition filing date.
107.
Bankruptcy court opinions must be appealed from within 14 days after entry
of judgement, order or decree being appealed, and it is debtor's responsibility to come to an arrangement with
counsel to handle such appeal.
108.
Statement of Intentions as to Property: When an individual debtor fails to file
a timely statement of intention (Sec. 521(a)(2) regarding all personal property,
including collateral securing a creditor's claim
and the trustee fails to seek a ruling that the collateral is of "consequential
value" to the estate, the automatic stay terminates not only as to personal
property scheduled as securing the creditor's claim, but as to all personal
property securing the claim. Samson v. Western Capital Partners, LLC (In re
Blixseth), 684 F.3d 865 (2012).
109. Causes of action relating to FCRA (Fair
Credit Reporting Act) are beyond the scope of normal bankruptcy representation
and I am not responsible for any aspect of erroneous credit reporting that your
creditors make and am not responsible for responding to same. Beware "Repair
your Credit" types of businesses.
110.
However, note should be taken of a recent case: Crawford v. LVNV Funding, No.
12389, (11th Cir. July 10, 2014). Last month's 11th Circuit Court of Appeals
decision that allowed a Fair Debt Collection Practices Act (FDCPA) claim to be
made against a bankruptcy proof of claim filed on out-of-statute (stale) debt
will get a rehearing if a petition filed by LVNV Funding, LLC is granted. At
least one commentator believes that the substantive hearing of an FDCPA based
cause of action might violate Stern v. Marshall.
111.
The absolute need for a credit counseling certificate in some bankruptcy courts
is considered to be a jurisdictional issue and you agree that your bankruptcy
case will not be filed until supply a current credit counseling certificate
dated within 6 months of the date of issuance of the bankruptcy filing.
112.
DUAL REPRESENTATION of related debtors in bankruptcy is forbidden and that
disinterested persons affiliated with a bankruptcy must have not had a
relationship with the debtor for at least two years (11 USC Sec. 101(14)(B)).
113.
Debtors must list and include income from ANY SOURCE that is being used to pay
your personal debts. This includes gifts, taking of property properly or
improperly, loans and lines of credit and any source no matter how unrelated you
consider it to be.
114.
Property of the bankruptcy estate includes ALL property, even property subject
to an exemption.
115.
A good faith filing, or abusive filing may be determined independently of
whether or not the means test shows a presumption of abuse or not.
116.
Distribution of assets and priorities by which creditors are paid will not be
controllable under bankruptcy procedure will likely not be done in accordance
with the way in which Debtor would have liked to have controlled Debtor's
distribution of payments. Debtor understands that where prior payments may have
been made that do not comport with that bankruptcy distribution of assets and
priorities by which creditors are paid, that a preference action may be brought
by the trustee to "undo" the payment or asset transfer from Debtor to a creditor
and subsequent re-distribution of the payment on Debtor's behalf to another
creditor.
117.
Plan confirmation may be denied if there is a variance between what is reported
on the schedules versus the true state of Debtor's assets.
118.
Use, sale or lease of property may be avoided or modified in bankruptcy, and
that executory contracts (contracts in which there is discretionary action on
both sides of the contract) and unexpired leases may be reaffirmed or rejected.
119.
Lien avoidance, fraudulent transfers and preference actions may occur within the
umbrella of a bankruptcy case filing, but are separate lawsuits having major
cost. In some cases there may be a waiver of discharge as to some debts as a way
to avoid the litigation and cost of defending some of these types of actions.
120.
The automatic stay may be inadvertently violated and that actions to recover
damages for violations of the automatic stay have a low chance of success where
only one incident of inadvertency occurs; but that these actions have a much
higher chance of success where the same entity violates the stay multiple times.
As a result, the debtor should agree to keep a log of the time, date, & persons
involved and details of ALL stay violations in order to help assist in the
evaluation of whether a stay violator, stay litigation and adequate protection.
121.
The goal and purpose of the Bankruptcy Trustee is to distribute, according to
bankruptcy priority, monies of the Debtor which are non-exempt and that the
Bankruptcy Trustee has an incentive of a statutory commission which is earned
when assets are distributed to creditors based upon proofs of claim. Debtor
should also understand that the Bankruptcy Trustee will act through the
appointment and fees of professional persons, and costs will be ultimately be
charged against the chapter 7 estate.
122.
A bankruptcy case may be removal to another court, remanded, and that the
bankruptcy judge may practice abstention of certain matters (tax determinations
under Sec. 505 for example) under Title 11 and 28 so that a full determination of all
matters may not be available in one bankruptcy court. Debtor should also
understand that in addition to abstention, discretion may be exercised by the
bankruptcy judge so that orders may or may not be final, and thus appeals to
District Court can be delayed, and that even where orders are final, appeals and
appellate procedure beyond the District Court level may take years, assuming
that Debtor has the resources, time and patience to pursue such appeals.
123.
Debtors should understand and be warned against Bankruptcy Crimes, such as those
governed by Title 18 U.S.C. Sections 151-155, 1961, 2516, 3057, 3284, and 6001,
but has also been warned that federal prosecutions are likely to include other
elements of federal criminal fraud, tax evasion, identity theft and much more,
to possibly create a criminal mixture of charges that can be overwhelming and
almost impossible to survive without conviction. Rule 2004 examinations and
other forms of discovery are powerful tools employed by the Bankruptcy Trustee
to discover fraud and criminal activity, which will be passed on to government
prosecutors.
124.
Debtor has been reminded about how tenuous dealings with the Bankruptcy Trustee
can be, and that abandonment of assets from the bankruptcy estate is something
that may be good if it occurs in the right way; but that pushing a Bankruptcy
Trustee to abandon can cause the raising of issues and of drawing the spotlight
upon the debtor (which is usually something to be avoided).
125.
Debtors will have hopefully been advised regarding 108 and the non-barred causes
of action that the Debtor holds at the time of filing of the Bankruptcy
Petition, and that the time is extended to the later of (1) the end of such
period occurring on or after the commencement of the (bankruptcy) case; or (2)
Two Years after the order for relief (generally the commencement of the
bankruptcy case). This can also be important in the need to list assets and
causes of action in the bankruptcy petition and schedules.
126.
One of the more powerful bankruptcy incentives regards the assumption and
assignment of leases and the cap on lease damages that the bankruptcy code
provides.
127.
The accuracy of a complete listing of creditors can be helped by providing a
credit report, but that (1) the identity of the creditors, & (2) the complete
addresses of the creditors is the responsibility of the debtor. As stated
earlier it is important for the Debtor to explore their own past in order to
correctly identify ALL creditors. Both accuracy and depth of past history must
be provided. An improper or incorrect address may result in the discharge not
applying to a particular creditor.
128.
Debtor is responsible check & verify the accuracy of the addresses of the list
of creditors. A credit report is a secondary, or backup source of
information that may help the creditor REMEMBER whether or not: (1) debts are
old, (2) may have changed hands, (3) creditors or debtors have moved, (4) the
debt exists, & (5) may help with recollection of details.
129.
Debtors need to get involved in re-configuring the entities present in Debtors'
life, including the banks with whom Debtor deals, the car companies, credit card
companies and much more. Shifting from the old and into the new should be done
as completely as possible, as a new configuration may be easier to keep
organized.
130.
In addition to being a mechanism for un-doing transactions, debtors should be
aware that Fraudulent Conveyance is criminally prohibited under California Penal
Code 531 (Party to fraudulent conveyance, a misdemeanor) and under California
Penal Code 155(Selling or concealing property by defendant or judgement
creditor, a felony). Conspiracy to participate in a fraudulent conveyance is a
crime, even if the transfer is not ultimately made (People v. Gilbert 1938; 26
CA2d 1, 5, 78, P2d 770, 773). Debtor understands that the defense of a crime
would necessarily have to be handed by another attorney (where the debtor uses
avails himself of a bankruptcy attorney) as the possibility of a charged
conspiracy would create a conflict of interest.
131.
Debtor may also be aware of the federal criminal statute violations associated
with bankruptcy, as follows (with fines determined via 18 USC 3571) : General
Bankruptcy-Related Criminal Penalties:
(A) Concealment of assets;
false oath & claims, Bribery: fine up to $250,000, prison: 5 Years; [18 USC
152]: [D felony]
(B) Embezzlement against the
bankruptcy estate: fine up to $250,000, prison: 5 Years; [18 USC 153]:[D felony]
(C) Knowing purchases from
Estate, Refusing inspection of Accounts: fine up to $5,000, prison: None;
Forfeiture of Office [18 USC 154]:[Infraction]
(D) Fee Fixing under Title 11
& Receiverships: fine up to $100,000, prison: 1 Year; [18 USC 155]: [A
Misdemeanor]
(E) Knowing disregard of a
Bankruptcy Law or Rule: fine up to $100,000, prison: 1 Year; [18 USC 156]:[A
Misdemeanor]
(F) Bankruptcy Fraud: fine up
to $250,000, prison: 5 Years; [18 USC 157]:[D felony]
(G) Perjury. fine up to
$250,000, prison: 5 Years;[18 USC 1621]: [D felony]
(H) Conspiracy. fine up to
$250,000, prison: 5 Years; [18 USC 371]:[D felony]
(I) Wire Fraud (Frauds &
Swindles (C) and/or Affects a Financial Institution (D). Fine is $250,000(C)
and/ or $1,000,000(B) and prison 20 years (C) and/or 30 years (B) [18 USC
1341]:[C and/or B felonies]
(J) Wire Fraud (Wire Frauds
(C) and/or Affects a Financial Institution (D). Fine is $250,000(C) and/ or
$1,000,000(B) and prison 20 years (C) and/or 30 years (B) [18 USC 1343]:[C
and/or B felonies]
(K) Bank Fraud Fine is
$1,000,000 and prison 30 years [18 USC 1344]:[B felony]
132.
Debtors should be aware that where the Bankruptcy code is silent the parties'
rights are governed by nonbankruptcy law (including applicable state law), and
that any state law that constitutes an obstacle to the accomplishment of the
full purposes and objectives of the Bankruptcy Code is preempted but only to the
extent it is inconsistent with the essential goals and purposes of federal
bankruptcy law. Otherwise, "federal law and state law, when not in conflict with
each other will mutually coexist.
133.
Debtor is responsible to have made more than reasonable inquiry into the
accuracy of the petition and has studied it carefully before signing it.
134.
Debtor should be aware that they should provide their attorneys a full and
honest disclosure and that every portion of Debtor's disclosure is consistent
with all other portions of the disclosure and with the truth. Debtor should also
understand that any discovery by Attorney after the bankruptcy has been filed
that the bankruptcy is being used to perpetrate a fraud will require Attorney to
withdraw from any representation, and that such withdrawal will likely draw
attention of the trustee and bankruptcy courts and put them on notice to
investigate why such withdrawal occurred.
135.
Debtor should also understand that there is no discretion in determining whether
a debt is sufficiently significant to include in the bankruptcy schedules and
assure that the schedules are complete and include even contingent debts accrued
throughout debtor's life. Debtor should further understand that creditors or
causes of actions of those who are dependent minors must also be listed.
(Minor's name, address and relationship of an adult person pursuant to rule
1007(m)re 7004(b)(2)).
136.
Debtor should also understand that the brevity of time spent in reviewing the
petition and schedules will not excuse debtor's failure to comply with duties to
check and verify each and every entry in the petition (including petition,
schedules and statements) before debtor signs it.
137.
Debtor should understand that debt reaffirmation is almost always harmful to
debtor and that most attorneys strongly suggest that in every case reaffirmation
is to be avoided. Many attorneys and advisors obtain an understanding with
assisted debtors that the attorney advisors will not approve reaffirmation
requests as a matter of course.
138.
Tenant security deposits held by landlords are property of the debtor's
bankruptcy estate after bankruptcy filing, but are subject to a landlord's
possessory lien. Generally, a landlord security deposit is collateral to insure
future payment, and the landlord is thus a secured creditor to the extent of the
security deposit.
139.
Debtor should understand that even a reaffirmation that has been approved by the
bankruptcy judge can fail, that is, the papers can be signed and returned to the
creditor according to bankruptcy procedure & rules, but that creditors have been
known to ignore reaffirmations and to repossess the collateral anyway.
140.
Debtors should understand the advantages of agreeing to research any and all
claims made by creditors and to identify and filter debts for "legitimacy" and
"staleness". (Stale debts are those that are so old that they are beyond the
statute of limitations and should not actively pursued by creditors. Debtor
understands that unless the debtor can identify old debts, typically older than
4 years in California as measured from the last time that a payment was made or
when the debtor made a further promise to pay or other action, that these debts
will likely be paid in an asset bankruptcy to the detriment of non-stale or
properly presented claims.
141.
The statute of limitations for SBA loans is typically 6 years and may be
measured from the shorter of (1) the time of the last partial loan payment, or
(2) verbal acknowledgment of the debt. This standard for staleness for SBA (and
possibly other government loans) is very difficult to overcome.
142.
A good rule for bankruptcy attorneys and debtors to adopt is that a debtor may
use the Attorney's name once debtor becomes a client of attorney BUT ONLY if
debtor agrees that attorney take no action related to such usage. Debtor is also
warned that ascribing untruths or bluffing statements to third parties regarding
the identity of your present (or former) attorney, what any attorney plans to do
(or not do) on your behalf can be dangerous and/or fraudulent. Further, it can
cause you to lose valuable rights if others rely upon an attorney action implied
by the debtor.
143.
Debtor may want to provide attorney with 50-100 pre-addressed and stamped
envelopes at the minimum first class postage in order to save attorney time and
to facilitate a higher level of communication from the attorney to the debtor.
144.
Debtor preparation for the 341(a) early meeting of creditors is important and it
can be advantageous for debtor agrees to drive together with the bankruptcy
attorney to the 341(a) meeting in order to: (1) make certain that both the
debtor and attorney show up for the 341(a) meeting without fail; & (2) enable
the attorney to go-over last minute concerns with the debtor in a more efficient
manner.
145.
Please note the
required notice under Title 11 U.S.C. 528 whenever the word "Bankruptcy"
appears: "We are a debt relief agency. We help people file for bankruptcy relief
under the Bankruptcy Code". [whenever I am actually hired to do this])*** Both
Title 26 and Title 11 have various forms of relief.
If you have
not done so already, read the statutes in the Disclaimer.
Communication Disclaimer:
Use of e-mail & telephone involves risk of message interception by third
parties (such as the government), and contacting me by a method you choose
carries this risk. Your mode of communication is my notice that you waive
the risk of interception by that mode and by such contact you consent to
return contact in the same manner. If you have ANYTHING that is sensitive to
convey to me, it should be given in a face-to-face meeting. No
attorney-client relationship exists in the absence of (1) a signed fee contract and (2) remission of an agreed-upon retainer. Absent such, I am not engaged by you as an attorney, nor is any other member of my law firm.
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