Covid-19 related CARES Payments could be taken by bankruptcy trustees in active bankruptcy cases.

Litvak Legal Group, PLLC (LitvakLegalGroup.com) continues to follow the news and developments regarding Covid-19 and bankruptcy. As many of you know, the recent CARES stimulus act included some very important bankruptcy-related provisions. First, CARES act excluded all unemployment-related payments from the “income” form means testing purposes. The Act also excluded the payments to individuals and families from the means test as well. We previously reported that the above payments were not explicitly exempted for bankruptcy purposes and unless could be exempted under a specific statute (like a wild-card exemption in states following the federal exemption schemes), it could potential fall to the bankruptcy trustee. The U.S. Trustees Services recently published its opinion on the applicability of the above funds. First, the USTS noted that the above is most likely the “property of the estate” and could be administered by the trustees in pending bankruptcy cases. However, the USTS expressed an opinion that bankruptcy trustees are very unlikely to pursue such a small estate, especially in light of the inevitable large administration expenses. In other words, trustees should not deprive debtors of much needed federal aid, as the funds are of a small significance to the bankruptcy estate. However, many of my colleagues from across the country were quick to point out that there were many instances, where Chapter 7 and 13 trustees were administering bankruptcy estates with just a few hundred dollars in them. It is amazing that such examples of bankruptcy inefficiency exist and seems to be contra the goals and purposes of the bankruptcy law and system.

First, we have not ran into a single trustee in the states and districts of our practice that would administer such a small bankruptcy estate. Of course, we cannot guarantee that none of the Chapter 7 or Chapter 13 trustees would change their mind and start pursuing the CARES payments. After all, there were cases where trustees were pursuing some small unexempted assets, however under a mistaken believe of the true FMV and unexempted equity. Nevertheless, I would caution debtors in pending bankruptcy cases, either to amend their petitions and exempt their CARES related payments or risk a possible turn-over action from their local trustee.

Thank you for turning-in. Be safe and healthy.

 Joe Litvak

LitvakLegalGroup.com

CARES Act payments to individuals and couples along with $500 per child payments are fair game for bankruptcy purposes.

CARES Act payments to individuals and couples along with $500 per child payments are fair game for bankruptcy purposes.

As many of us know under the latest stimulus package called CARES act individuals and married couples are supposed to receive checks of $1,200 to a single taxpayer and $2,400 to a joint filers. In addition to the above, taxpayers can receive up to $500 per qualifying child  they claimed on the last filed tax return. All of the above payments assuming strict income requirement, as reported on the last filed tax return.

Many of the taxpayers currently in bankruptcy or considering bankruptcy protection should be aware that some Chapter 7 and Chapter 13 trustees take a position that the above stimulus payments are nothing but a tax refund and, therefore, are fair game for their interception. Apparently, the issue of exempting the stimulus payments was advocated by the bankruptcy community and specifically rejected by the Congress. Because the Act does not specifically exempts the fund received, it will be up to the discretion of the trustees how to treat them. Many aggressive trusties will surely try to grab the incoming check and payments and despite the underline policy and objective of the CARES act.

If you are debtors in the pending Chapter 7 case,you need to discuss the issue with your attorney as soon as possible. One of the possible solutions is to amend the forms and schedules to include the fund as an asset and specifically exempt it. Thous who have no available exemptions would surely be receive no benefit from the much needed stimulus payment. However, if you were considering filing a Chapter 7 case post March 27, 2020 and have no projected available exemption, you may want to hold your filing and spend your money on essentials.

Just like debtors in Chapter 7 case, if you are in the pending Chapter 13 case, pre-confirmation, you may want to amend your filings and schedules to address the issue of this new "tax refund." However, debtors in the pending post-confirmation cases will most like be at the mercy of the discretion of their respective Chapter 13 trustees.

We will continue monitoring the issue and advising our clients accordingly.

Your truly,
Joe Litvak, Litvak Legal Group, PLLC at LitvakLegalGroup.com

Mercedes Benz USA is to pay aver $400,000 for the initial $6,000 dispute.

Lemon Law Update: Some Manufacturers just don’t get it: they are responsible for the attorney fees if they lose their lemon law case. In Hinkley v. Mercedes-Benz USA, the original dispute of approximately $6,000 turned into a legal battle over $400,000 legal fees and the manufacturer ultimately lost in the Wisconsin Court of Appeals upheld the award of attorney fees of over $400,000. Let it be the lesson for the savvy manufacturers that if the consumer is able to show a pri-facia lemon law case, they need to settle rather quickly and avoid a potential lengthy and costly dispute, that could dent their pocket for both parties’ counsel fees.

Reagon-Dykes Auto Group Bankruptcy may be bad-facts/bad news for honest auto dealers.

Another out-of-trust dealer files for Chapter 11 Bankruptcy in an attempt to protect its assets and keep operating or orderly liquidate. Last week, on August 1, 2018, Reagor-Dykes Auto Group, a franchised Ford Dealer of Lubbock, Texas filed for Chapter 11 bankruptcy in Texas. The voluntary petition was filed in the Bankruptcy Court for the Northern District of Texas. The court’s docket showed at least 6 related cases for Reagor-Dykes related company. Case Number are 18-50214-rlj11, 18-50215-rlj11, 18-50216-rlj11, 18-50217-rlj11, 18-50218-rlj11, 18-50219-rlj11. As of this morning, many creditors filed their appearances and the cases are to be jointly administered. The hearing on the Debtor’s motion to use cash collateral to pay salaries and some other obligations is set for hearing on August  16, 2018.

The filing stems from the dealer’s default on its obligation on floor-plan financing. According to Ford, the dealer defaulted on $41 million in floor plan financing. Allegedly, the dealer was also falsifying the financing paper and double financing the same assets multiple times. The parties are expected in court this week to start the proceeding and the dealer will try to keep its door open and to prevent Ford from repossessing or otherwise moving the collateral from the dealer’s location. The filing is a stark reminder of the common occurrence from about 10 years ago, when during the financial crisis of 07-09, many dealers were unable to meet their obligation under their flor plan loans and cripple defaults were very common though-out the country. While many dealers, especially large one, were able to file for bankruptcy and emerge at somehow controlled liquidation or reorganization, many others were simply “left to die,” when their floor-plan lenders, often in panic, repossessed or removed their inventory.

We will closely monitor the case and its development simply because the above dealer is one of the Ford’s largest and most prestigious dealer in the nation. Let us hope that a set of bad facts does not bring out a set of bad law, as other honest and hardworking auto dealers might be detrimentally affected by this case, especially if they find themselves in need of a bankruptcy filing.

Penalty Relief for Partnerships That Filed Late in 2017

The IRS recently issued guidance providing penalty relief for certain partnerships that did not file the required returns in 2017 for the 2016 tax year.

Notice 2017-47 provides penalty abatement for these partnerships only if certain circumstances apply:

1. The partnership filed the returns with the IRS and furnished Schedule K1 to its partners (as appropriate) by the date that would have been timely, or
2. The partnership filed Form 7004 to request an extension by the date that would have been timely before the deadline change.

This is a great chance to clean up tax liability exposure.  

Filing a tax return after the assessment by the IRS will not be considered a “proper tax return” under Beard standard and would not make the tax debt dischargeable.

Filing a tax return after the assessment by the IRS will not be considered a “proper tax return” under Beard standard and would not make the tax debt dischargeable.

The 3^rd Circuit court has just decided a case regarding the dischargability of the tax debt, when a taxpayer files his “tax return” after the Service assesses the tax deficiency. The court held that under the long standing Beard v. Commissioned of Internal Revenue case, the tax payer failed the fourth requirement of the test to make “. . . a  honest and reasonable attempt to satisfy the requirements of the tax law.”  The court rejected the approach adopted by the Eighth Circuit in In re Colsen that the “reasonable attempt . . . focuses of the content of the form, not on the circumstances of its filing.” Therefore, the court concluded that the tax payer’s forms 1040 were not a return for 11 U.S.C. 523(a)(1)(B) purposes and could not be discharged. Following the same reasoning, the failed attempt to file a “return” would not start a Statue of Limitation for collections’ purposes of the tax debt and the Service could try to collect any time. IRC 6502.

Thomas Giacchi v. U.S. Department of the Treasury Internal Revenue Service.

NJ to allow lawyers without a true physical location to practice in the state.

NJ finally reconsidered its long-standing requirement ( Rule 1:21-1(a)) of a physical or, in the words of the rules, “bona fide” office location in the state. Effective February 1, 2017, the rule change allows a virtual office under a few conditions. 

First, the practitioner “must structure his or her practice in such a manner as to assure, as set forth in RPC 1.4, prompt and reliable communication with and accessibility by clients, other counsel, and judicial and administrative tribunals before which the attorney may practice.” 

Second, the practitioner must designate a physical location for the record keeping and document request purposes. 

Third, the practitioner must “designate the Clerk of the Supreme Court as agent upon whom service of process.” 

Forth, the attorney must employ [t]he system of prompt and reliable communication . . . [that may be] achieved through maintenance of telephone service staffed by individuals with whom the attorney is in regular contact during normal business hours." 

Finally, the attorney “shall be reasonably available for in-person consultations requested by clients at mutually convenient times and place.”

This is a big win for out of state providers, who could not afford or did not wish to maintain a burdensome physical location in the state. However, many serious practitioners would probably opt for an actual physical office in the state to impress their clients. I am sure that most clients will care.