All items from Bankruptcy Mastery

TaxesEverything you need to know about taxes in bankruptcy, plus a bit more, in a virtual workshop.
This NACBA webinar  November 20 and 21st will do far more than scratch the surface of the possibilities and pitfalls when your bankruptcy clients bring tax troubles to the table.
Plus, splitting the six hours of material over two days allows for a bit of law practice on the side.
What’s on tap
Day one opens with 2 hours of tax basics, including discharging taxes, tax liens, and planning for tax issues, along with the vital question of how to get and understand tax transcripts.
Next up is cancellation of debt income, capital gains, real and phantom, from sales of real property, and dealing with 1099’s.
Day two tackles liens and levies; the possibilites in the short year election; and innocent spouse issues. Tara Twomey looks at cases on SFR’s, plan provisions, and late filed returns.
The seminar wraps up looking at alternatives to bankruptcy for tax issues, including offers in compromise.
There’s a question and answer session with each speaker, if you attend live, and an opportunity to submit questions in advance.

Posted 5 weeks 2 days ago

As lawyers, words are our stock in trade.
If we want to describe, explain, or persuade, we need to use the right word.
The difference between the almost right word and the right word is really a large matter – ’tis the difference between the lightning-bug and the lightning.  MARK TWAIN
I was blown away by the casual simplicity and clarity of Ed Boltz’s explanation of the difference between preemption and preclusion in an exchange  that just flew by on the NACBA list serve.  (You are a member of NACBA, aren’t you?)
BoltzEd Boltz, NC Bankruptcy Lawyer
Ed has kindly permitted me to share here his charge to use the right word.

Posted 11 weeks 4 days ago

9420983815_4857d1981b_zProfessionals in Chapter 11 have to be “disinterested“;  make sure they are also capable.
In two recent cases, the estate has employed professionals connected to the debtor in his pre filing past. It’s often the case that accountants and tax preparers come with familiarity with the debtor that seems useful.
You think that it’s economic to exploit that back story.
However, in the cases I’m recalling, the very history that made them appealing to the DIP has made it hard for the estate’s counsel to demand better performance than they have initially proffered.
Chapter 11 not for the newbie
I don’t talk much here about Chapter 11 issues.  Chapter 11 isn’t a big part of my practice and Bankruptcy Mastery is really for the less experienced bankruptcy practitioners.
I’m sure I’ve said it in print as well as in person:  a Chapter 11 is not an overgrown Chapter 13.
So if you are new to bankruptcy practice, stash today’s piece away til you are really ready to mastermind a Chapter 11.

Posted 19 weeks 2 days ago

4226218448_849b2121b0_zAll manners of avoiding tax on cancelled debt are NOT created equal.
I have, up to this point, treated “discharge in a case under Title 11” and “insolvency” as equally effective ways to avoid including cancelled debt in taxable income.
Thirty five years into this practice, I just discovered that there is a world of difference in the long run, after an encounter with a diligent, but ultimately incorrect, tax preparer for a Chapter 13 client.
The issue was whether the debtor must reduce the basis on his home by the amount of debt discharged in his bankruptcy.
In my case the unsecured debt was a whopping $375,000.  The preparer insisted that the client must reduce his basis by that amount upon discharge of the debt in Chapter 13.
That would have effectively eliminated the basis in the home, for purposes of someday calculating capital gain on a sale.  The client was horrified.
IRS Form 982
We’ve all pointed clients who call up clutching a 1099 for cancelled debt to  form 982.  It’s the reply, if you will, to the 1099.

Posted 20 weeks 3 days ago

8632883494_62b7ddd71f_zWe’ve had a string of them….
[Hint: in a small practice, a "string" means "three. " ]
But three clients in the past month with confirmed Chapter 13 plans have contracted to sell their homes without mentioning it to us, their attorneys.
The degree of chaos varied:  inadequate time to get approval of the sale from the trustee within the contractual closing date;  mortgage stripping issues when the plan is paid off early; and taxing authorities who decided to claim the post petition appreciation.
But the bigger problem is clear:  operating successfully in Chapter 13 requires debtors to absorb a bunch of information about how bankruptcy works.

  • What can they, and can’t they, do without prior consent?
  • What does the vesting option mean in the real world?

When is the best time to learn?
When we first meet prospective debtors, we’re dealing with people experiencing stress, shame, and overload.
Clients are overwhelmed with the information they must process on bankruptcy choices, procedure, and consequences.
When the case is confirmed, and all the client has to do (they think) is make the plan payments, they relax and tune out.

Posted 21 weeks 3 days ago

8677091677_b76c713b76_z (1)
One trait distinguishes great bankruptcy lawyers from the run of the mill.
Bankruptcy forms suck you in to the view that filing a case is just recording what the debtor owns and owes today.  If all you focus on is the here and now, you can assemble a bankruptcy petition.
But if there is one, uniform failing in average bankruptcy lawyers, it’s that they confine their attention to the here and now-what does the client have, owe, and earn.
Great bankruptcy lawyers take the broad view.  They look backwards and forwards from the filing date before uploading the petition.  Because bankruptcy rights and consequences flow from both the past and the future.
Let me count the ways this works.
Past events impact today’s petition
Our client’s present circumstances didn’t just pop up, overnight, like a mushroom.  They are the product of years of interlayered events.  The better we understand those events, the better we can advise the debtor.

Posted 22 weeks 2 days ago

empty chairsThe number of new cases through my doors is down, just like it is everywhere.
But I’m staying busy.   Busier some days than I would like to be.
I thought it might be fun to look at the change in the composition of my cases over the past two years.
More complicated cases
There don’t seem to be any simple cases anymore.  Debtors who have managed to avoid filing bankruptcy til this late in the Great Recession don’t lead simple lives.  Their issues are more complicated, the competing interests are stronger.
Complex cases take more of my time and support a larger fee.
Bankruptcy litigation
I’ve just completed the liability phase of a nondischargeability case, defending a debtor from charges that his moonlighting in the same field as his employer created a non dischargeable debt.
While bankruptcy litigation is down along with filings, there always seem to be more need for good bankruptcy trial lawyers than there is supply.
There are certainly more discharge violations than are ever enforced for the benefit of our clients.  Go on, make that discharge mean something.

Posted 24 weeks 4 days ago

Bankruptcy sales
Now that the real estate market in my area is improving, we are dusting off another of our little used skills to effect sales of property during a Chapter 13:  the sale free and clear of liens.
The ability to sell property subject to disputes and continue the fight over a bank account, rather than a piece of property, is one of the real treasures in the Bankruptcy Code.
A sale free and clear transfers the disputed lien or interest from the property to the proceeds of the sale.  The order typically provides that the lien on the proceeds has the same validity and extent as the lien had when it attached to the real estate.
The seller can deliver clear title to a buyer, and the parties can work out or litigate the rights to the proceeds thereafter.
Let’s look at how it works, and flag some of the potholes you can fall in along the way.
Meet §363(f)
The governing subsection is found in Chapter 3 of the Code, thus it applies to sales in bankruptcy cases under any chapter.  So, while it speaks of the power of the “trustee” to sell property, a Chapter 13 debtor may invoke it as well.

Posted 25 weeks 3 days ago

896429958_6b49a68f2d_zWhy would a Chapter 7 trustee shut down a proprietorship business with no value?
That question comes up again and again from newish bankruptcy lawyers who can’t imagine that a trustee would demand the closing of the debtor’s business.
After all, goes the argument, the debtor needs to make a living and the business has no non-exempt value.
The trustee’s  insistance on closing the business is more understandable when you hear this nightmare.
The postman, the pit bull and the priority claim
Our Chapter 11 debtor had a rental property leased to a tenant with a pair of large dogs.  During the pendency of the case, the dogs bit the postman.
The postman sued the debtor in possession along with the tenant on the grounds that the owner was liable for injury incurred on the property.
Assuming a verdict in favor of the postman, not only is the bankruptcy estate liable, but the claim is a cost of administration, payable ahead of the prepetition creditors.
Not a good state of affairs for the debtor in possession who is supposed to be operating as a fiduciary for his creditors.

Posted 29 weeks 4 days ago

8080742303_3ea08767d6_zGetting things done and off your desk is usually a good modus operandi for an attorney. 
But sometimes, waiting until the last minute is better.
The Required Bankruptcy Courses
Since 2005 when the Bankruptcy Code was most recently amended with changes known as the Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA“), debtors filing bankruptcy are required to take two financial courses and file  proof of taking those courses.
The first course comes prior to filing the bankruptcy case and relates to credit counseling.
The second  is a “personal financial management”  course and must be taken after the bankruptcy case is filed.
The timing of when to file the proof of the personal financial management course can be very important.
The Post-Filing Financial Management Course
All bankruptcy attorneys know that their clients must take the financial management course and file proof of completion with the court.

Posted 32 weeks 1 day ago