On March 23 the Supreme Court of the United States issued an opinion in a bankruptcy case that, in essence, says creditors need to read their mail. The case is United Student Aid Funds, Inc. v. Espinosa. Justice Thomas delivered a unanimous opinion.
The facts are fairly simple. Espinosa had several student loans that totalled $13,000. In his Chapter 13 plan he proposed to pay principal only, no interest, which resulted in a discharge of the interest. Normally, any discharge of any part of a student loan requires an adversary proceeding and a finding of a "hardship discharge." In this case, neither the creditor nor the trustee objected to Espinosa's plan. Espinosa completed his plan and received a discharge.
Several years later, United Student Aid Funds attempted to collect by garnishing Espinosa's tax refund. Espinosa responded by reopening his bankruptcy case to obtain an order prohibiting United Student Aid Funds from trying to collect. The case eventually worked its way to the Supreme Court. There were several complicated legal issues involved in the case, but the bottom line is, where a creditor admittedly received a copy of the plan and failed to object, it can't come back years later and ask the court to fix its mistake.
Thursday, March 25, 2010
Friday, March 19, 2010
Automobile Claims and Bankruptcy
Toyota has recalled thousands of vehicles for accelerator problems. Now Honda has recalled over 400,000 vehicles for brake problems. With all of those recalls, it's certain that some owners of the recalled cars are contemplating filing or have filed bankruptcy.
In the case of Toyota, a few lawsuits seeking class action status for those involved in accidents allegedly caused by the defects have already been filed. Such lawsuits may be filed by Honda owners. If you are among those affected by these recalls and are in or considering bankruptcy, beware. You might have a claim against the manufacturer. If so, that claim is probably property of your bankruptcy estate and you are obligated to disclose it to the trustee, who may or may not decide to pursue it. Be sure to let your bankruptcy attorney know that you own a car covered by the recalls so he can investigate whether to list a potential lawsuit or participation in a class action in your bankruptcy filing.
In the case of Toyota, a few lawsuits seeking class action status for those involved in accidents allegedly caused by the defects have already been filed. Such lawsuits may be filed by Honda owners. If you are among those affected by these recalls and are in or considering bankruptcy, beware. You might have a claim against the manufacturer. If so, that claim is probably property of your bankruptcy estate and you are obligated to disclose it to the trustee, who may or may not decide to pursue it. Be sure to let your bankruptcy attorney know that you own a car covered by the recalls so he can investigate whether to list a potential lawsuit or participation in a class action in your bankruptcy filing.
Tuesday, March 2, 2010
Why is the Estate Tax So Controversial?
Taxes are a fact of life, whether they are income tax, sales tax, property tax, or a tax on gasoline. We grumble about paying taxes, but accept them. Why, then, is the estate tax so controversial?
For starters, because Congress waffles back and forth about eliminating it. The estate tax was scheduled, in 2001, to disappear permanently in 2010. It has disappeared, but is slated to return in 2011. Like a bad penny, it keeps turning up.
But probably the biggest reason for controversy is over who (or what) the estate tax hits and how much it actually contributes to public revenue. By some estimates the estate tax only provies 1% or less of all public revenue. By contrast, it impacts to the point of destroying some small family businesses. When a small business owner dies his business may be asset-rich but cash-poor. The business may have inventory, equipment, land and other assets that give it a value, on paper, in excess of the exemption amount ($3.5 million the last time there was an estate tax). But there may be very little cash with which to pay the tax. So in many cases, the business has to be sold to pay the tax, leaving a pittance to heirs, compared to the value they would have received had the business been passed on intact.
A similar concern is the fact that the estate tax is one last gouge at a lifetime of savings. Consider, for example, an estate that consists of stocks and bonds that have paid dividends and interest. The money with which those stocks and bonds were purchased was taxed with an income tax before they were even bought. Then the income from the stocks and bonds (the dividends or interest payments) were taxed again as income. The dividends had already been taxed at the corporate level before they were paid. Finally, on death, there is an estate tax levied. That's up to four separate taxes imposed. To a lot of people, that's at least one tax too many.
For starters, because Congress waffles back and forth about eliminating it. The estate tax was scheduled, in 2001, to disappear permanently in 2010. It has disappeared, but is slated to return in 2011. Like a bad penny, it keeps turning up.
But probably the biggest reason for controversy is over who (or what) the estate tax hits and how much it actually contributes to public revenue. By some estimates the estate tax only provies 1% or less of all public revenue. By contrast, it impacts to the point of destroying some small family businesses. When a small business owner dies his business may be asset-rich but cash-poor. The business may have inventory, equipment, land and other assets that give it a value, on paper, in excess of the exemption amount ($3.5 million the last time there was an estate tax). But there may be very little cash with which to pay the tax. So in many cases, the business has to be sold to pay the tax, leaving a pittance to heirs, compared to the value they would have received had the business been passed on intact.
A similar concern is the fact that the estate tax is one last gouge at a lifetime of savings. Consider, for example, an estate that consists of stocks and bonds that have paid dividends and interest. The money with which those stocks and bonds were purchased was taxed with an income tax before they were even bought. Then the income from the stocks and bonds (the dividends or interest payments) were taxed again as income. The dividends had already been taxed at the corporate level before they were paid. Finally, on death, there is an estate tax levied. That's up to four separate taxes imposed. To a lot of people, that's at least one tax too many.
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