Lots of complicated bankruptcy questions fell in my lap today.
So, I thought I would recap some of my bankruptcy attorney highlights.
Bankruptcy Attorney and the Trustee
First up, a follow up to a question, from a year ago, from an out of Michigan attorney who is a creditor.
Because the Chapter 7 bankruptcy debtor, in this case, is a crook. Well, a fraud anyway. Shuffling assets into shell corporations and his 18 year old son, and such.
The chapter 7 trustee has the powers, and duty, under the bankruptcy code to, investigate and compel the debtor to produce documents and records, even appear to answer questions under oath.
Failure to cooperate with the trustee can result in loss of your bankruptcy discharge, which means you would still owe all your debts.
AND, still be in bankruptcy where the trustee gets your non-exempt assets.
In this case, there is a proposed settlement on the table for the debtor, the fraud, to pay 100% to creditors. AND pay the trustee’s attorneys’ fees.
So, the problem?
It might take up to 7 years for all of that to be paid.
Should my potential client hire her own bankruptcy attorney to object to the tentative deal?
If so, I would point out that there are not one, but two homes, that the trustee should get the court to force the undoing of the fraudulent transfers so that the trustee can sell them and pay creditors faster.
Bankruptcy Attorney and IRS Problems
Another call, referred by another bankruptcy attorney, who did not want a case this messy.
One spouse already filed bankruptcy half a dozen years ago. The other calls, with, no job, $15,000 of credit card debt, but . . .
It seems her husband’s company was in her name, years ago, and, not all the income taxes were witheld to pay the employee’s taxes. So, she was stuck by the IRS with personal liability for those trust fund taxes. That is, the government says you were an officer/owner/responsible person for the corporation that had money in trust for the employee liability, so, now YOU have to pay it.
Plus, of course, other income tax liability for personal income, on which the returns were filed years late.
However, income tax on your personal income IS dischargeable in bankruptcy, if, the return was filed more than two years ago, the tax year is over three years ago, and, if the tax were assessed by the IRS (as opposed to liability that you showed on your return but just did not send in the money) over 240 days ago.
Well, that worked for some of her liability, but, of course, now there are IRS liens.
What property do you have, I ask?
Well, we made a mistake and bought a house on land contract, worth $650,000 with a $450,000 balance and the balloon payment due next year. Oh, and the Florida home worth $200,000 with $150,000 mortgage,
Client was not sure if homes were in her name, his name, both names, or what exactly the IRS liens said, which property they had been filed on.
I explained that, as in scenario one above, when you file Chapter 7 bankruptcy, a trustee is appointed to reduce your assets to cash for the benefit of creditors.
So, if NO IRS liens on the homes, there was too much equity to exempt, so the trustee would sell the homes to pay the creditors. Not a good deal.
Contact a certified bankruptcy attorney with your questions.