Update on Tax Claims in Bankruptcy and the ACA

This from our friend at the IRS:
Just wanted you to be aware that Internal Revenue Service Insolvency has now been tasked with collecting unpaid shared responsibility payments (SRP) in bankruptcy.  These are amounts owed by taxpayers who do not have coverage under the Affordable Care Act.  The Service is treating SRPs as excise taxes, so SRPs will be priority amounts under Bankruptcy Code section 507(a)(8) on our proofs of claim and for discharge purposes.  I don’t yet know how they will be designated (“type of tax”) on the claim.  There are a few differences on how SRPs will be handled compared with our other priority tax claims:

1.        There is no penalty associated with an SRP (interest does accrue at the statutory rate).
2.       We will file motions to lift stay on pre-petition offsets of pre-petition payments (in other words, Bankruptcy Code section 362(b)(26) will not apply) – so we’ll file motions to lift on all offsets of SRPs except post-petition offsets of post-petition payments.  I have not heard how we will inform debtors that we are holding their refund for SRPs, but I assume they can get that information on the “Where’s My Refund” feature of the irs.gov website.
3.       We will file 1305 claims for SRPs.
4.       We will not file estimated claims for SRPs.

Let me know if you have any questions.  I’m sure we’ll be changing things as we go along.

Richard Charles Grosenick
Office of the Chief Counsel – IRS

Missed Debts, New Debts, and Conversion

You filed for bankruptcy.  A year later, you’re sitting at your dining room table staring at a billing statement for medical services.  Do you have to pay it?
Step 1 – Gather the Relevant Data

  1. When exactly (i.e. what date) was your bankruptcy case filed?
  2. What chapter of bankruptcy did you file under?  Chapter 7?  Chapter 13?
  3. Was this bill listed on your bankruptcy schedules?
  4. When was the debt incurred (in this example – what was the date of service)?
  5. What is the billing address and the statement date?
Step 2 – Determine What Kind of Debt This Is
  1. If the debt was incurred before your bankruptcy filing date, then it is a pre-petition debt.
  2. If the debt was incurred after your bankruptcy filing date, then it is a post-petition debt.
Pre-Petition Debts
  1. If the debt was listed on your bankruptcy schedules, then check the address to determine if notice was sent out to the right place.  Also check the statement date.  If within a few days of your bankruptcy filing date, then this may be a harmless “letters crossed in the mail” situation.  If the statement date is substantially after your bankruptcy filing date, then you are likely looking at a stay or discharge violation.
  2. If the debt was not listed on your bankruptcy schedules and you filed a Chapter 7 case that had no distributions (the trustee did not sell any non-exempt assets, recover any preferences, or void any transfers) and the debt was otherwise dischargeable, then the debt is discharged.  (This is a result of case law called “Guseck” in the Eastern District of Wisconsin.  If you filed bankruptcy in another district, a different result may occur.)
  3. If the debt was not listed on your bankruptcy schedules and you filed a Chapter 13 case or a Chapter 7 case that had distributions, then the debt is non-dischargeable under 11 U.S.C. sec. 523(a)(3).
Post-Petition Debts
  1. Post-petition debts are generally non-dischargeable with one exception.
  2. If you file Chapter 13, then later convert to Chapter 7, debts incurred between the filing and conversion dates may be dischargeable under 11 U.S.C. sec. 348(d).

12 USC 95a2

“12 USC 95a2” is the latest of phony laws that I have encountered that people are apparently being advised to invoke.
I haven’t found much useful information about the scam yet, and I haven’t been able to positively link it to the Sovereign Citizen movement, though it certainly has its fingerprints all over it.  People are being told that they can sign over or transfer their debts to the United States Treasury if they write a note on a billing statement with a bunch of nonsensical legal jargon.
First of all, let’s be absolutely clear – there is no 12 U.S.C. § 95(a)(2) (as it would properly be written).  There is a 12 U.S.C. § 95 and there is a subsection (a), but subsection (a) has no further subsections below it.  12 U.S.C. § 95 describes “Emergency limitations and restrictions on business of members of Federal Reserve System; designation of legal holiday for national banking associations; exceptions.”  It has nothing to do with transferring, signing over, assigning, planning, thinking, dreaming, or astral projecting anything to anyone.
The entire text of the actual statute is as follows:

(a) In order to provide for the safer and more effective operation of the National Banking System and the Federal Reserve System, to preserve for the people the full benefits of the currency provided for by the Congress through the National Banking System and the Federal Reserve System, and to relieve interstate commerce of the burdens and obstructions resulting from the receipt on an unsound or unsafe basis of deposits subject to withdrawal by check, during such emergency period as the President of the United States by proclamation may prescribe, no member bank of the Federal Reserve System shall transact any banking business except to such extent and subject to such regulations, limitations and restrictions as may be prescribed by the Secretary of the Treasury, with the approval of the President. Any individual, partnership, corporation, or association, or any director, officer or employee thereof, violating any of the provisions of this section shall be deemed guilty of a misdemeanor and, upon conviction thereof, shall be fined not more than $10,000 or, if a natural person, may, in addition to such fine, be imprisoned for a term not exceeding ten years. Each day that any such violation continues shall be deemed a separate offense.(b)(1) In the event of natural calamity, riot, insurrection, war, or other emergency conditions occurring in any State whether caused by acts of nature or of man, the Comptroller of the Currency may designate by proclamation any day a legal holiday for the national banking associations located in that State. In the event that the emergency conditions affect only part of a State, the Comptroller of the Currency may designate the part so affected and may proclaim a legal holiday for the national banking associations located in that affected part. In the event that a State or a State official authorized by law designates any day as a legal holiday for ceremonial or emergency reasons, for the State or any part thereof, that same day shall be a legal holiday for all national banking associations or their offices located in that State or the part so affected. A national banking association or its affected offices may close or remain open on such a State-designated holiday unless the Comptroller of the Currency by written order directs otherwise.(2) For the purpose of this subsection, the term “State” means any of the several States, the District of Columbia, the Commonwealth of Puerto Rico, the Northern Mariana Islands, Guam, the Virgin Islands, American Samoa, the Trust Territory of the Pacific Islands, or any other territory or possession of the United States.

This brings up a larger point about false legal advice.  I had intended to link to my earlier blog post regarding Sovereign Citizens, but that post has mysteriously vanished.  Not sure how paranoid I should be feeling about that right now.  At any rate…

Any time that you’re dealing with anything legal in nature, make sure that you are taking advice from someone who is actually licensed to practice law.  Any competent lawyer would easily have been able to debunk the “95a2” issue by running a quick statutory search.

Second, stringing together a bunch of fancy legal jargon together – though it may sound impressive – gives your position absolutely no legal strength.  In fact, if you’re hoping for a judge to side with you just as a matter of principle, you might find that such exaggerated attempts serve to annoy the judge, rather than causing him or her to take you seriously.

Third, a common argument from the Sovereign Citizens is that they simply don’t recognize the government or the tax laws they’re trying to avoid.

Recognition of governments is a valid and actual thing.  Countries do it to each other all the time.  The recognition of Palestinian and Israeli sovereign states has been an contentious issue for years.  You can challenge the authority of the government if that’s what you choose to do.  HOWEVER, there is a bit of “might makes right” here, in that the laws on the books are the laws that will be enforced.  You can evade taxes or try to transfer your mortgage to the United States Treasury if you want to, but if you’re hoping that the police won’t arrest you or that a judge won’t imprison you for these things based on your rejection of their authority, you’re not going to get anywhere.  Unless you plan to raise an army (which is why Sovereign Citizens are considered to be domestic terror threats), you’re better off consulting with an actual attorney and exploring your options through the existing legal framework.

On that note – if you’re struggling with debts, don’t try to pawn it off on the U.S. Treasury.  Call my office today to find out how you can ACTUALLY get debt relief.

Saturday Mail Processing / Delayed Mail Delivery

In recent weeks, I’ve been notified by 3 or 4 different clients that letters sent out were arriving considerably later than is typical for postal delivery.  I met with the Green Bay postmaster today and we have solved at least part of the mystery.  All mail picked up on Saturdays is re-routed to Milwaukee and distributed from there.
So, effective immediately, no mail will be sent from this office on Saturdays (any outgoing mail will be held until Monday morning).  Furthermore, I advise my clients to not send out mail on Saturdays, particularly if mailing something time-sensitive or on a deadline.
In at least one instance, a letter (thankfully not time-sensitive) was delivered 3-4 weeks after it was mailed.  The diversion to Milwaukee doesn’t completely explain that, so the postmaster is continuing to investigate.  If you receive any letter from my office more than a week after the date on the letter, please hang on to the envelope.  There is USPS tracking information printed on them that we can use to figure out what’s going on.

Misconceptions of Authority – the Judge and the Trustee

In recent weeks, I’ve gotten a number of e-mails from Chapter 13 clients — commonly concerning their plan payments or payments of tax refunds, that they’re going to be a little (or a lot) late.  They worry that the Trustee is going to dismiss their case.
On the one hand, it is wise to be concerned about dismissal due to late or missing payments because yes – of course that can happen.
But the Trustee isn’t the one who makes that call.  The Trustee has no authority to dismiss your bankruptcy case.  That’s the judge’s job.
Most people who file for bankruptcy – whether Chapter 13 or Chapter 7 – will never meet the bankruptcy judge.  Many disputes in bankruptcy are resolved outside of the courtroom.  Of those disputes that do go in front of a judge, many of them only require the presence of the attorneys.  If you are ever required to appear before the judge, it sometimes (but not always) means that something has gone horribly wrong.
Even though the Trustee is likely to be the only person you meet who even remotely resembles an authority figure in the bankruptcy process, it is important to remember that the Trustee is not a judge.
If your case is going to be dismissed for a default in plan payments, the Trustee files a motion with the court.  A motion is basically a request from one party to have the judge do something.  So, a “Motion to Dismiss” is a trustee’s request that the judge dismiss your case.  The Trustee isn’t dismissing your case, merely asking the judge to dismiss it.  And even then, the judge won’t dismiss your case without giving you an opportunity to argue for why the case should not be dismissed (by filing an “Objection” within a proscribed deadline – typically 21 days.
If no objection is filed before the deadline, the judge will typically grant the moving party’s request.  If an objection is filed, then all sorts of things can happen.  Usually the court will schedule a hearing.  The motion could be withdrawn (if, after reviewing the objection, the moving party believes their motion is no longer appropriate).  The motion could be withdrawn if both parties – outside of the courtroom – stipulate to resolution.  If there is no resolution, then a preliminary hearing is usually held and in many cases, a decision is made.  If the judge wants further evidence or testimony, the judge may schedule an evidentiary hearing, and that’s when your appearance may be required.
So, that’s how motions work.  The point?  The trustee is not the judge.  The trustee cannot dismiss your case.  If the trustee wants your case dismissed, notice will be given and you will have a short period of time to respond to the trustee’s motion and argue to keep your case open.

What is this thing I got in the mail (part 2)?

Frequently, I receive phone calls from clients asking me to explain a letter they received in the mail.
If your bankruptcy case is already filed and it’s an official document filed with the court – then there’s no problem.  Everything filed with the bankruptcy court – I automatically get a copy of.  All you have to do is tell me what the caption says (see red circle below) and I can identify which document you’re referring to, pull up a copy of the document, and discuss it with you in detail.  Anything filed with the bankruptcy court is going to have a caption substantially similar to the one below, which identifies the court, the parties, the case number, and the document caption.
If you receive ANYTHING ELSE, either bring a copy of the document to me, or send a copy of the document to me (either by mail or by e-mail).  I am not psychic, and I am not going to comment on letters or any other documents that you have received until I can actually review it.