521(2)(a) Allows Non-defaulting Chapter 7 Debtor to retain Property subject to Secured Loan by Staying Current
In re Price __ F.3d __ (3rd Cir. 2004)
The Prices wanted to use their automobiles while remaining current on their monthly loan payments. Lienholder, Delaware State Police Federal Credit Union (“Credit Union”), convinced the Bankruptcy Court and the District Court that Sec. 521(2)(A) of the Code does not permit Debtors to continue possessing cars simply by paying their bills, but instead allows only 4 options:
1. surrender the cars
2. purchase via lump-sum payment
3. negotiate another loan that would attach post-petition liability
4. claim a recognized exemption
This issue has been the subject of no fewer than 8 discordant decisions by Federal Courts of Appeal. 4 Courts have held that a Debtor is not limited by the options enumerated in Sec. 521(2), while 4 others have held to the contrary. After a close examination of the text and context of Sec. 521(2)(A), the Appeallate Court concluded that the provision does not prevent non-defaulting Debtors from retaining secured property by remaining current with respect to their loans.
McKowen v. IRS __ F.3d __ (10th Cir. 2004)
Exemption of income tax debt from discharge allows Federal Government to collect funds lawfully due, even from a Debtor who has received a discharge in Bankruptcy. Debtor transferred assets of his failing corporation to himself. IRS assessed against him individually as transferee for corporate income tax liablities. Debtor argued that his “liability” for corporate taxes was a mere debt, not a tax, and therefore discharged in his personal Chapter 7.
The Appellate Court found that the Code’s specific exemption of income tax debt from discharge reflects Congress’ intention to allow the Federal Government to collect funds lawfully due even from a debtor who has received a discharge in Bankruptcy. Nor is this obligation diluted by the fact that the debt has been transformed from a direct tax liability of a transferor taxpayer into a transferee liability.
Clever theory though …
Supreme Court to Consider IRA Exemption in the Code
Rousey v. Jacoway, 03-1407
The Supreme Court recently indicated that it would consider whether people facing Bankruptcy can prevent certain retirement savings from being used to pay their debts. In the subject case, Richard and Betty Jo Rousey lost on a Federal Appeal in which the Court noted that Congress could easily change the law if it wanted to protect IRAs. The Rouseys had about $55,000 in 2 accounts rolled over from pensions and 401K plans. The 8th Circuit Court of Appeals had held that because the Rouseys could withdraw money the IRAs were akin to “readily accessible savings accounts.” Debtors’ Attorney, Thomas Goldstein, told Justices in a filing that the case is important because of the popularity of IRAs and the number of people who file for Bankruptcy protection. About 1/3 of American households have a traditional IRA, which “typically represents an enormous investment in one’s future,” he said. Goldstein said potentially hundreds of thousands of people will be affected by the Court’s decision. The Rouseys filed for Chapter 7 Bankruptcy, something done more than 1 million times a year in the United States