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Only a person who resides or has a domicile, a place of business, or property in the United States, or a municipality, within the longest portion of preceding 180 days may file for bankruptcy. 28 U.S.C. §1408
Governmental units are generally not eligible for bankruptcy (except Chapter 9-municipalities). A person is defined as an:
No person may file if within the preceding 180 days:
The case was dismissed by the court for willful failure of the debtor to abide by orders of the court, or to appear before the court in proper persecution of the case: or
The debtor requested and obtained voluntary dismissal of the case following filing of a request for relief 11 U.S.C. §109(G)
Voluntary case when the debtor initiates the proceeding and pays the filing fee
Involuntary cases initiated by creditors
Venue--is in the federal district where the debtor has maintained residence, domicile or principal place of business or assets for the longest portion of 180 days immediately prior to filing. 28 U.S.C. §1408
The first (and normally last) meeting of creditors is generally held within 20 to 40 days of the filing of the bankruptcy petition. Adjournments of this meeting are common to permit curative amendments and additional examination of the debtor.
Proofs of claim in “asset cases” must be filed within 90 days after the first date set for the meeting of creditors. Governmental claims must be filed within 180 days of case filing (entry of “order for relief”). Bankruptcy Rule 3002(c). If a case changes from a “no asset” to an “asset” case, a separate notice will be sent setting a claims bar date.
A Chapter 7 trustee is automatically appointed by the court to administer the case.
Over 90% of Chapter 7 cases are “no asset” cases and no proof of claim can, or need be, filed
In an asset case, the trustee collects the nonexempt property of the debtor, converts that property to cash, and distributes the cash to the creditors—often a very lengthy process.
In the case of a business debtor, the trustee may operate the business, but only with the court’s approval and for the purpose of liquidating the assets in the most effective manner. This is extremely rare.
An individual debtor gets a discharge subject to several exceptions. (11 U.S.C. §523). There is only one Chapter 7 discharge available to a debtor every 8 years.
Available to all types of debtors, including individuals
No debt limits as in Chapter 13
The debtor(referred to as the “Debtor in Possession” or “ DIP”) typically remains in control and possession of the bankruptcy estate and operates the business. Although some of these cases have individual debtors, most involve larger corporations. Some, referred to as “mega cases” (Like General Motors and Charter Communications) can be very complex.
A Chapter 11 case can be either a reorganization with a “performing plan” or a liquidation wherein an orderly liquidation of assets occurs. The liquidation often takes the form of a sale of substantially all of the debtor’s assets pursuant to 11 U.S.C.§363.
In a successful Chapter 11, the DIP will file with the court and serve on all creditors a disclosure statement and a plan. (11 U.S.C.§1123 . A Chapter 11 plan must provide for full payment of “priority” tax claims of governmental entities within five years from the date of filing. (11 U.S.C. §1129 (a)(9)(c)). If the plan does not provide for full payment of priority taxes within five years, then a governmental entity can file an objection to the plan of reorganization. 11 U.S.C. §§ 1128, 1129; Bankruptcy Rule 3020
Chapter 13 “Adjustment of debts of individuals with regular income”
Only individuals may be Chapter 13 debtors. No corporations or other business entities
A sole proprietorship business is eligible for Chapter 13
Only an individual with “regular income” that owes no more than $1,010,650 in non-contingent, liquidated secured debt, and $336,900 in non-contingent liquidated unsecured debt can file a Chapter 13. 11 U.S.C. §1322 109(e). These debt limits change on a yearly basis
Chapter 13 are always “asset” cases. Claims must be filed on same schedule as Chapter 7. A claims bar date will always appear on the Notice To Creditors
The debtor proposes a Chapter 13 plan to pay creditors with disposable income (estate property) over at least a three, but normally a five year period. The debtor receives a broad discharge, if the plan is completed. A relatively small number of debtors actually complete their plans and receive a discharge.
A Chapter 13 plan must provide for the full payment of “priority” tax claims of governmental entities. 11 U.S.C. §1322 (a)(2) As with Chapter 11 cases, a governmental entity may object to a plan that does not provide for full payment of priority taxes.
Most Chapter 13 cases involve individual debtors who earn wages and have consumer debts. Administration, including payment of claims is overseen by a Standing Chapter 13 Trustee who is appointed in each jurisdiction.
Be honest in pre-petition dealings with creditors and disclosure of assets
Denial of discharge-complete or partial; 11 U.S.C. § § 523, 727
Tax Duties of the Debtor: Must Pay Post-Petition Tax Liabilities in a Timely Manner
The purpose of most Chapter 11 bankruptcies, is to subordinate and eliminate pre-petition debts and allow the debtor to operate on a going-concern basis until a plan is developed and implemented. Accordingly, post petition debts, including taxes must be paid. This is required by law and by the Chapter 11 Operating Order issued by the Court in most cases. If a business cannot timely pay its post-petition bills, it is subject to dismissal or liquidation on motion of creditors, the unsecured creditors’ committee or the Bankruptcy Administrator.
The same holds true for Chapter 13 cases. “During the life of a chapter 13 case, the debtor is expected to stay on the financial straight-and-narrow….” In re Jemison, 2007 WL 2669222 (Bkrtcy.N.D. Ala. 2007)
Litigation, and all collection activitiesagainst a debtor/taxpayer are stayed automatically on the date of filing pursuant to the automatic stay provisions of the Bankruptcy Code. 11 U.S.C.§362 (a)(1) – (8) There are, however, several statutory exceptions to the “automatic stay”, which are applicable to governmental entities, including counties. 11 U.S.C.§ 362 (b) For example, a county may enforce its “police or regulatory authority”; prosecute a criminal matter; and withhold, suspend, or restrict motor vehicle, professional or recreational licenses. Also, pertaining to taxes, a county can
1) audit a taxpayer to determine tax liability;
2) issue a notice of tax deficiency to a taxpayer;
3) make a demand for tax returns; or
4) make an assessment of any tax and demand payment. §362(b)(9)
A county may perfect a statutory lien for ad valorem property taxes. 11 U.S.C. §362(b)(18) However, there is no direct authority for the issuance of a tax lien concerning other types of taxes. 11 U.S.C. § 362 (b)(9)(D)
If you are enforcing a county’s police or regulatory authority, you may be able to obtain a monetary and/or injunctive judgment against a taxpayer in a non-bankruptcy forum while the bankruptcy case is pending, but you will not be able to collect or execute on the monetary judgment. 11 U.S.C. § 362 (b)(4)
You may also move the bankruptcy court to terminate, annul, modify or condition the automatic stay. 11 U.S.C. §362 (d) Bankruptcy courts, have exclusive jurisdiction over the provisions of an automatic stay. You must file a motion (fee required) and establish “cause” to remove the stay.
If you are not proceeding under one of the applicable statutory exemptions from the automatic stay or have not obtained “relief from the stay” from the bankruptcy court, you may be subject to sanctions for violating the stay, including monetary damages to the taxpayer. If your contemplated action against the debtor brings a smile to your face, THINK TWICE!!
Very broad definition---claim is virtually any right to payment. Bankruptcy Code definition. 11 U.S.C. §101 (5):
A “claim” is a debt -
(1) 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
(2) 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, legal, equitable, secured, or unsecured.
Examples of a governmental unit’s claim or right to payment are taxes, administrative penalties and fines, regulatory fees, license fees, other administrative fees, civil penalties and attorney’s fees.
You generally need to file a written “proof of claim” with the bankruptcy court to receive payment.
Filing a claim is a relatively simple process that normally uses an official claims form. It may need to be filed with a “ claims agent” rather than with the court. This requirement, if applicable, will be clearly set forth by the Court.
A proof of claim should identify the nature of the claim, characterize it as secured or unsecured, priority or non-priority, pursuant to the applicable Code provisions. 11 U.S.C. §507
The proof of claim should conform to the bankruptcy court’s official form. Bankruptcy Rule 3001(a) A copy of the latest official form is always available on the Bankruptcy Court’s web site, usually as a “fillable” PDF file. Specific documents supporting the amount owed should be attached to, and filed with, the official form. Your claim can always be amended, so file it as soon as possible with the best information available.
If a creditor does not timely file a proof of claim, the debtor or creditor may file a proof of such claim on its behalf. This often occurs in tax situations where the debtor wishes to affirmatively pay tax debts in a Chapter 13 or Chapter 11 case.
A filed proof of claim is assumed valid and is “deemed allowed” unless objected to by the debtor or trustee. 11 U.S.C. §502(a) There is no limitations period for a debtor to object to a claim, but the terms of a reorganization plan may effectively operate as an objection. Even if a debtor’s bankruptcy schedules accurately reflects a county’s claim, in both amount and priority, it is important to file a proof of claim. If a debtor does not object to your claim, you will still be bound by the treatment of your claim as listed in the debtor’s plan of reorganization, once confirmed by the court. Accordingly, it is important to carefully review Chapter 11 and Chapter 13 plans for provisions that may negatively impact your claim. If you don’t object, they will become binding upon you.
There is a special “deemed filed” rule in Chapter 11 cases only, which provides that a proof of claim is “deemed filed” when it is listed in a debtor’s schedules, and is not characterized as disputed, contingent or unliquidated. 11 U.S.C. §1111(a). This provision should generally not be relied upon, and an actual proof of claim should always be filed pursuant to §502(a).
Chapter 7: All late filed claims are accepted. However, treatment (payment) of the claim depends on whether there was an excuse for the late filing, and whether or not the claim is a priority claim.
Chapter 11: Leave can be granted by the court to file a late claim if “excusable neglect” is shown. Bankruptcy Rule 9006(b); Pioneer Investment Services v. Brunswick Associates, 507 U.S. 386 (1993). Doctrines of “informal claims” and notice issues
Chapter 13: There is no provision for late filed claims, but a debtor may choose not to object to a late filed claim, if the alternative is that the claim will not be discharged due to a lack of notice or as an exception to discharge.
Sales taxes are almost never dischargeable.Alabama sales tax constitutes a trust fund taxand is not dischargeable in bankruptcy. A trust fund is a tax that is levied directly on the consumer and is required to be collected by the merchant and reported to the state. See Peiffer, above.
A Sales Tax Examination or Audit can be Conducted While a Business is in Bankruptcy. Often, doing an audit is the only way that a governmental unit can determine the debtor’s liability. As stated above with regard to the automatic stay, the entry of an assessment against a debtor/taxpayer is not a violation of the Automatic Stay provisions of the Code. Assessments may be entered, but the governmental unit cannot act to obtain possession of property, of the bankruptcy estate.