Bankruptcy

Furnishing Tax Returns to Creditors

By Bill McLeod, Esq.

Among the changes to the Bankruptcy Code was the added requirement that debtors provide a copy of their federal income tax return/transcript to trustees, and if requested, creditors. The code provides that the case shall be dismissed if the returns are not disclosed timely manner. But what if a creditor does not receive the return after? In a recent Massachusetts decision, the Bankruptcy Court was called upon to answer that question.

The debtors filed their case in July 2008. Approximately one month prior to the scheduled Meeting of Creditors, the debtors provided the trustee a copy of their federal tax return. Approximately 10 days prior to the Meeting of Creditors, a creditor sent a letter requesting a copy of the return. Debtors? counsel brought the copy of the return to the Meeting with the intent to give it to the creditor?s attorney. While the two attorneys spoke, debtors? counsel did not give a copy of the return.

Creditor then filed a motion to dismiss citing Section 521(e)(2)(c). It argued that the Bankruptcy Code mandated that the case be dismissed and that the Bankruptcy Court had no discretion to allow the case to continue. The Bankruptcy Court however, did not agree.

The court examined the legislative history of this new (post 2005) requirement. Section 521(e)(2) requires a debtor to provide a recent tax return to the trustee at least 7 days prior to the first date set for the Meeting of Creditors. It also provides that a debtor must furnish a copy of the return to a creditor who makes a timely request. However, the section provides that the debtor is obligated to provide the return to the creditor at the same time the debtor provides it to the trustee. Thus, the creditor must request a copy of the tax return/transcript either at or before the time the debtor supplies the return to the trustee. This creditor did not make the request until after the trustee had received the return.

For those reasons, the creditor?s motion was denied to dismiss was denied.

In re Fontaine, US Bankruptcy Court, District of Massachusetts at Worcester, 08-42454

Full post as published by McLeod Law Offices on December 29, 2008 (boomark / email).