Michigan Bankruptcy Attorneys

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Detroit Chapter 7 and Chapter 13 Consumer Bankruptcy Filings

Board Certified Consumer Bankruptcy Specialist Walter Metzen

American Board of Bankruptcy Certification

Bankruptcy Law in Michigan/ Debtor's Duties

Q: 11 U.S.C. 521(e) provides that a debtor must provide the Federal tax return or transcript for the most recent year before the bankruptcy “for which a Federal income tax return was filed.” If the debtor failed to file a tax return in the most recent year before filing bankruptcy, should the trustee accept the last one actually filed?

A: Yes. For example, if a debtor files a case on March 1, 2006, and a 2005 return has been filed, the debtor will need to provide that return pursuant to 521(e)(2). If, however, the 2005 return has not yet been filed, then the debtor will need to provide the 2004 return or the return of the next earlier year that was filed. If the most recently filed return is too dated to verify the debtor’s present income, then the trustee should request other documentation.

 

Q: If a trustee discovers that a debtor has not complied with the law to file tax returns, what is the trustee required to do?

A: Chapter 13: If a chapter 13 debtor fails to file tax returns required under 11 U.S.C. 1308, then, pursuant to 1325(a)(9), the debtor’s plan cannot be confirmed. The chapter 13 trustee should monitor the filing of tax returns.

Chapter 7: Except for the most recently filed tax return which must be provided to the trustee under 11 U.S.C. 521(e)(2), if a chapter 7 trustee does not specifically request copies of the unfiled pre-petition tax returns pursuant to 521(f)(2), or seek them through discovery, the trustee has no obligation to take action regarding the filing of pre-petition tax returns.

With respect to post-petition tax returns, 521(j) provides a taxing authority with the ability to request dismissal or conversion of the case for a debtor’s failure to file a tax return that becomes due after the commencement of the case. Though the trustee may also request the filing of post-petition tax returns under 521(f), he/she is not required to do so. Nor is the trustee required to report the non-filing of post-petition tax returns to the United States Trustee.

 

Q: What is a trustee’s reporting obligation if a debtor fails to provide his/her tax return at least seven days prior to the 341 meeting?

A: A trustee is expected to require a debtor to provide tax returns as mandated by 11 U.S.C. 521(e)(2), although a trustee does have discretion as to when to file a motion or take other action. A trustee should take action if the tax return is not produced before or at the 341 meeting.

 

Q: If the tax return is not provided before or at the 341 meeting, should the meeting be continued? If so, should a motion be filed to extend the time for objecting to discharge?

A: Whether a trustee continues the meeting of creditors or moves for dismissal for failure to provide the tax return as required by 11 U.S.C. 521(e)(2) is within the discretion of the trustee. It is recommended that unless the debtor can show that the failure to comply is beyond his/her control, or unless a continuance is in the best interest of the estate, the trustee should move to dismiss or otherwise take effective action to obtain the return.

Pursuant to Fed. R. Bankr. P. 4004(a), a complaint objecting to discharge in a chapter 7 case must be filed no later than 60 days after the date first set for the 341 meeting. If the trustee or United States Trustee believes that such a complaint is warranted, then a motion to extend the time to object to discharge should be filed.

  

Q: Given that 11 U.S.C. 521(i)(1) provides that a “case shall be automatically dismissed” if the debtor fails to file all mandatory documents, how can a trustee prevent dismissal of a case in which the debtor has assets but has not filed payment advices or other information required under 521(a)?

A: To prevent automatic case dismissal when assets are available and it is in the best interest of creditors to go forward with a bankruptcy case, the trustee may move under 11 U.S.C. 521(a)(1)(B) to have the court waive the filing of the mandatory documents.

 

Q: Is failure to attend the 341 meeting sufficient grounds to object to the automatic dismissal provision?

A: No. The grounds for automatic dismissal set forth in 11 U.S.C. 521(i) do not include failure of the debtor to attend the 341 meeting.

Q: How are cases automatically dismissed by the clerk's office pursuant to 11 U.S.C. 521(i)(2)?

A: Procedures for dismissal are determined locally. In many districts, dismissals will require no order, but in other districts an order will be entered. Some courts have indicated that a hearing will be noticed in each case. Regardless of the procedure employed in a district, the trustee should be aware of the action necessary to protect asset cases from being automatically dismissed.

 

Q: Is a year-to-date payment advice that covers a six-month period sufficient?

A: No. 11 U.S.C. 521(a)(1)(B)(iv) requires a debtor to file with the court copies of all payment advices received within 60 days of filing, and Interim Rule 4002(b)(2)(A) requires the debtor to bring “evidence of current income such as the most recent payment advice” to the 341 meeting. A year-to-date payment advice that covers a six-month period is not sufficient.

 

Q: 11 U.S.C. 1325(b)(3) provides that allowable deductions are determined in accordance with 707(b)(2), which does not mention charitable contributions; however, 11 U.S.C. 1325(b)(2)(A)(ii) provides that charitable contributions of up to 15 percent may be deducted from current monthly income before arriving at disposable income. Please clarify.

A: Under the chapter 7 means test, charitable contributions are allowed to be continued as provided in 707(b)(1), even though 1325(b)(3) only refers to 707(b)(2). Sections 707(b)(1) and 707(b)(2) are so entwined that it would be difficult to apply one of the sections without the other. Therefore, Form B22C at line 35 allows the deduction of “continued charitable contributions.” A trustee should allow charitable contributions to be deducted in determining disposable income in a chapter 13 case.

 

Q: What is the chapter 13 administrative percentage for purposes of the means test?

A: The administrative expense for administering a chapter 13 plan is determined by the United States Trustee Program. It differs by judicial district and the appropriate percentages are posted on the Program’s Internet site at www.usdoj.gov/ust/.

 

Q: 11 U.S.C. 521(e)(2)(A)(i) and 521(f) refer to filing copies of Federal income tax returns or transcripts. However, in Puerto Rico and the Virgin Islands, individuals are not required to file Federal income tax returns. In addition to looking at payment advices and Schedule I, should a trustee ask debtors in those areas for territory/commonwealth tax returns to confirm income?

A: If a trustee or the United States Trustee does not believe that he/she can accurately confirm income from the information that the debtor is required to provide, then he/she should request appropriate additional information as deemed necessary, such as territory or commonwealth tax returns. Since the Code does not expressly require the production of these documents, the trustee or the United States Trustee may need to seek production through discovery.

 

Bankruptcy Basics - For Cases Filed on or after October 17, 2005 (pdf)
Bankruptcy Basics - For Cases Filed before October 17, 2005 (pdf)


   
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Michigan Board Certified Consumer Bankruptcy Specialist Walter Mezen, American Board of Certification American Bankruptcy Institute 313-962-4656 Toll Free: 888-777-FILE