Bankruptcy

Would-a, Should-a, Could-a.

By Bill McLeod, Esq.

Everyone has found themselves saying that at one time or another. Perhaps it was the regrettable decision of a particular business venture (or business partner), or perhaps it was ordering the chicken salad special, rather than a turkey club. Or, perhaps, you happened to be joint debtors who recently learned what can happen when you do not do what you should have and could have done.

The debtor?s joint case was filed as a chapter 13 in July of 2007. At a later hearing, the debtors advised the court that they intended to convert the case to chapter 7. At a later 341 meeting, the debtors provided the trustee with a copy of their 2005 income tax return, but did not provide a copy of the 2006 tax return, even though that return had been filed. The Trustee warned the debtors to produce the return, and advised them that he would seek a dismissal of the case if it was not provided. The meeting was continued to the following month to allow the debtors time to give the returns to the trustee.

At the continued meeting, the debtors? attorney appeared without the debtors and without the tax return despite what she relayed was ?harsh admonitions to her clients? to produce the documents. The return was eventually provided 36 days after the deadline set forth in Section 521(e)(2)(A)(i).

This code provision requires the debtors to provide the trustee a copy of the federal income tax return required under applicable law for the most recent tax year ending immediately before the commencement of the case for which a federal income tax return was field. The code requires that the case be dismissed unless the debtor can establish that the failure to abide by the provision was beyond the debtor?s control, however, the court acknowledged that seeking dismissal was within the discretion of the trustee.

The Chapter 7 Trustee exercised that discretion and moved to dismiss the case because the debtor did not provide copies of the 2006 tax returns. In allowing the motion, the court noted that ?Congress did not intend that trustees spend inordinate amounts of time chasing down tax returns from debtors who have sought relief in bankruptcy.?

In re Nordstrom, 381 BR 766 (Bankr.C.D.Cal., January 18, 2008).

Full post as published by McLeod Law Offices on April 03, 2008 (boomark / email).