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THE CONSUMER BANKRUPTCY LETTER |
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In This Issue:
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December 13, 2004
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ACADEMY NEXT STOP - TEXAS!
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PENDING EVENTS, SEMINARS & CLE
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HEADS-UP ON RECENT CASES
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IRS LOOKING HARD AT CREDIT COUNSELORS
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January 27, 28, 29 2005
KING BANKRUPTCY ACADEMY
Discharging Taxes in Bankruptcy From A to Z
San Antonio, Texas
(925) 829-6460
BankruptcyAcademy.com
February 10-12, 2005
AMERICAN BANKRUPTCY INSTITUTE
Rocky Mountain Bankruptcy Conference
Denver, Colorado
Contact: 1-703-739-0800 or
abiworld.org
February 26 - March 1 2005
NORTON INSTITUTES OF BANKRUPTCY LAW
Park City, Utah
nortoninstitutes.org
April 9-12 2005
NORTON INSTITUTES OF BANKRUPTCY LAW
Las Vegas, NV
nortoninstitutes.org
April 29 - May 1 2005
NACBA ANNUAL CONVENTION
San Diego, California
nacba.org
May 13-15, 2005
CALIFORNIA BANKRUPTCY FORUM
Annual Conference
The Westin Mission Hills Resort
Rancho Mirage, California
calbf.org
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THE IRS HAS BEGUN A POTENTIALLY WIDESPREAD REJECTION OF NONPROFIT STATUS FOR CREDIT COUNSELING AGENCIES
This past year, the IRS began tightening its scrutiny of the nonprofit tax status of credit counseling agencies. In some recently made public letters rejecting the nonprofit tax status of particular agencies the IRS makes it clear that it doesn't buy the argument that using credit counseling to collect debts for creditors is a legitimate "nonprofit" activity, and could wipe out the "nonprofit" tax-exempt status of virtually the entire industry.
In the letters, the IRS essentially makes the case that the creditor funding and the creditor benefits of debt management plans (DMPs) effectively make credit counseling agencies debt collectors, not charities. The members of the largest credit counseling association, the National Foundation for Credit Counseling (NFCC), for example, collectively receive two-thirds of their funding from creditors. That funding, as determined by the IRS in these letters, is essentially payment for debt collection services, which it does not consider to be a tax-exempt activity.
If the principles spelled out in the IRS letter were applied industry- wide, it could have the effect of wiping out virtually the entire credit counseling industry. That's because virtually the entire industry is composed of nonprofit, tax-exempt CCAs which rely heavily on creditor "fair share" funding provided in exchange for servicing DMPs.
Source: The Coalition for Responsible Credit Practices
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FOR FIRST TIME - USE OF CREDIT CARDS TRUMPS CHECKS
For the first time, Americans' use of credit cards, debit cards and other electronic bill paying has eclipsed paper checks. The number of electronic payment transactions last year totaled 44.5 billion - exceeding the number of checks paid, 36.7 billion, according to Federal Reserve studies released Monday.
The shift seen in 2003 toward more electronic payments reflects the expanding role of technology in the retail, financial and banking businesss, private economists said.
SOURCE: AP
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DEBTOR'S SCHEDULES ARE NOT DISPOSITIVE EVIDENCE OF AMOUNT OR LIABILITY FOR DEBT FOR PURPOSES OF § 109(e)
In this case the Debtors' Chapter 13 was subject to dismissal on the basis that the total of their liquidated debts, as of the date of filing the bankruptcy, exceeded the debt limits of 11 U.S.C. § 109(e). The court said:
Debtors’ schedules indicate that Debtors are the sole owners of Lucky M and that Debtors owe unsecured debts totaling $379,807.25. Of this unsecured debt, Debtors scheduled two separate debts to the Texas Comptroller. One debt is listed in the amount of $248,678.20 for the period beginning October 1, 1999 and ending September 30, 2002. The other debt is listed as unknown in amount and no date or range of dates is specified to indicate when the debt arose. Both debts are listed as disputed, but none of the unsecured debts scheduled by Debtors, including both debts to the Comptroller, are denominated as contingent or unliquidated.
On September 3, 2004 the Comptroller filed the Motion seeking dismissal of Debtors’ bankruptcy case on the basis that Debtors’ are ineligible under section 109(e) of the Code to be chapter 13 debtors because the amount of their unsecured debt exceeds the statutory cap provided by section 109(e).
The Comptroller argues that the court need look no further than Debtors’ schedules to conclude that Debtors are ineligible for chapter 13 relief since Debtors’ scheduled unsecured debt exceeds $307,675.00 and the debts to the Comptroller are not designated as contingent or unliquidated.
However, this court previously declined to adopt a per se rule that debts which are merely disputed must be included in the section 109(e) analysis, stating: It seems sensible that, unless the equities of the case require a different result, a debt denominated as “disputed” should be included in the section 109(e) eligibility analysis if, on its face, it is a legally enforceable debt on the petition date. . . . Conversely, where the “dispute” requires a creditor to establish the debtor’s liability, the debt should not count for section 109(e) purposes. Hatzenbuehler, 282 B.R. at 832 (citations omitted). [In re Hatzenbuehler, 282 B.R. 828, 833 (Bankr. N.D. Tex. 2002)]
(ed. note: although the court in this case acknowledged that some “disputed” debts should not be included in the § 109(e) where the nature of the dispute goes to the liability for the debt, in this case it found on the evidence that as a matter of law the debtor was liable for the tax debt, and hence the claims were included, resulting in dismissal of the case.)
In re Moomand (Bankr. N.D. TX 2004)
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POST-PETITION CROP DISASTER AID IS NOT PROPERTY OF THE ESTATE
A crop disaster payment from the federal government to a farmer, who was the debtor in a closed bankruptcy case, should not be treated as property of his bankruptcy estate where the legislation authorizing the payment did not exist at the time of the bankruptcy.
In re Burgess (5th Cir. 2004)
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COURT MAY AWARD FEES UNDER § 330 EVEN WHERE TERMS OF PROFESSIONAL ENGAGEMENT WERE APPROVED UNDER § 328
United States Court of Appeals for the Sixth Circuit considered whether the bankruptcy court abused its discretion in declining to award attorneys fees to debtor’s counsel under section 328 of the Bankruptcy Code, notwithstanding the bankruptcy court’s approval of the terms of the professional’s engagement, and instead awarding fees in a substantially reduced amount under section 330 of the Bankruptcy Code. The Sixth Circuit held that a determination of whether a fee arrangement, like the one at issue, has been pre-approved under section 328 of the Bankruptcy Code should be judged by the “totality of the circumstances.” Having applied this standard, the Sixth Circuit concluded that the attorney’s contingency fee agreement had not been pre-approved by the bankruptcy court. and conditions of employment of any professionals engaged under section 327 be “reasonable,” including an engagement entered into on a retainer or contingency fee basis.
Section 330(a) of the Bankruptcy Code provides that, subject to section 328, the court shall allow reasonable compensation for actual, necessary services rendered by professional persons. A court which has approved the terms and conditions of a professional’s employment under section 328 may authorize fees under an arrangement, under section 330(a), other than that previously approved under section 328 if the court finds that the arrangement under section 328 proves to be “improvident” under the circumstances. Factual Background Airspect Air, Inc. (“Airspect”)
Nischwitz v. Miskovic (In re Airspect Air, Inc.), 385 F.3d 915 (6th Cir. 2004).
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INVOLUNTARY BANKRUPTCY FOR UNITED STATES GOVERNMENT!
Reduced revenue plus out-of-control spending has landed the United States in Chapter 11. Taxpayers in Dewsnup, Ill filed the case yesterday.
Within minutes of filing, the bankruptcy judge, Hon. Oxley Sarbanes, ruled that the principal officer for the Debtor-In-Possession, George Bush, was not competent to handle the reorganization and has appointed Rooker Feldman as the Trustee.
Says Feldman, “We'll be taking a hard look at wasteful spending. Just identifying all the frivolous expenditures will take years.”
When asked how much that would cost in terms of his fees, he said he wouldn't know until he adds up how much will be saved by eliminating unnecessary expenditures. “My fee will, of course, be at least equal to the amount saved for the estate. That's normal procedure.”
"And, of course, we will be making our boilerplate motion for the debtor's attorney to upchuck his fees, and my fees incurred in getting those fees back will, of course, exceed the amount of fees disgorged. That's normal procedure.”
Trouble may be expected when Feldman moves for return of trillions of dollars in preferential payments paid to the national bank of Japan for interest on their loans. These loans have kept the U.S. from going belly-up for years. Of course, the Trustee's fees incurred in the process will eat up most, if not all, of the payments recovered on behalf of the estate.
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PUBLISHED BY KING BANKRUPTCY MEDIA FOR BANKRUPTCY PROFESSIONALS 7080 Donlon Way Suite 222 Dublin California 94568 (925) 829-6460. Morgan D. King, Editor.
© King Bankruptcy Media 2004 CONTACT US AT editor@bankruptcymedia.com
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