[CLBS] Question on Effect of Conversion

Tue Feb 26 08:40:52 MST 2019

What kind of tax? Income? Sales? Unemployment? Withholding?

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________________________________
From: Amber Kauffman <Amber.Kauffman at tax.idaho.gov>
Sent: Friday, February 22, 2019 9:29:45 AM
To: Wade Carolyn G; Randal French; clbs at admws.idaho.gov
Subject: RE: Question on Effect of Conversion

First case - Chapter 13 filed 10/14/05, never confirmed.   Converted to Ch 7 on 7/19/06.  A POC was filed for tax years 2003, 2004, and 2005.  The 2003 and 2004 debts are prepetition, but the 2005 debt is post-petition, pre-conversion.  For many reasons, this case did not discharge until 4/30/18 (he was in bankruptcy for nearly 13 years).   A distribution was made, but none to the priority tax debt.

Second case - Ch 7 filed 6/22/18, Discharged 9/28/18. No asset case.  Debtor claims this discharged the 2003, 2004, 2005 taxes.

I understand clearly the 2003-2004 taxes were stayed by the first case and therefore remained priority in the second case and were excepted from discharged.  The penalties were technically discharged, but under equitable tolling I think these are arguably not-discharged either.  My only concern is regarding the 2005 taxes.  Were these stayed?  If they were not, then they were discharged by the second bankruptcy.

Reviewing the caselaw, I found support both ways.  The 11th Circuit said this, "The filing of a petition operates as an automatic stay. A conversion order is not the filing of a petition. A conversion order does not trigger section 362." In re State Airlines, Inc. 873 F.2d 264, 268 (11th Circuit 1989).  That case specifically was in the context of a creditor who lifted the stay pre-conversion, the court held it remained lifted after conversion because the stay was not reimposed by the conversion.

Thanks for looking at it.

Amber

-----Original Message-----
From: Wade Carolyn G <carolyn.g.wade at doj.state.or.us>
Sent: Thursday, February 21, 2019 7:44 PM
To: 'Randal French' <rfrench at rfrenchlaw.net>; clbs at admws.idaho.gov; Amber Kauffman <Amber.Kauffman at tax.idaho.gov>
Subject: RE: Question on Effect of Conversion

The facts aren't clear.

When was the first case filed, and under what chapter?  How long did it stay in that chapter?  What happened then?  When was the second case filed, and under what chapter?

When was the tax incurred?

Carolyn Wade
Oregon Department of Justice
541.686.7846 (Eugene)
503.934.4459 (Salem)

-----Original Message-----
From: CLBS [mailto:clbs-bounces at admws.idaho.gov] On Behalf Of Randal French
Sent: Thursday, February 21, 2019 6:37 PM
To: clbs at admws.idaho.gov; Amber Kauffman
Subject: Re: [CLBS] Question on Effect of Conversion

If the first case was the ch 13 converted to chapter 7 and the tax debt arose during the ch 13 more than a decade ago, then for income taxes it would seem that it is no longer a priority tax claim if the tax returns were filed.  If it is any other kind of tax, then it would still be a priority tax.

Whether it is discharged depends on the language of 523(a), doesn't it?  I don't have 523(a) in front of me.  Doesn't that make non-dischargeable the taxes owed for which no tax return was filed, a tax return was fraudulent, the tax is a priority tax under 507(a)(8), or the tax return was filed within two years of the current bk filing date? Review that section for accurate information.

If it is dischargeable, then any action to try to collect violates the stay.  If the debt is not dischargeable, then the stay of action against the debtor ends when the discharge is granted or denied.  Once that happens, if the debt is in fact not discharged, then the state can commence collection action against the debtor from assets that are not assets of the estate, such as post-petition income.

But even if the debt would not be discharged, if it ultimately would be paid in full from the estate by a distribution from the ch 7 trustee, I think any collection action would violate the stay and expose the State to potential sanctions for a stay violation.

Good luck.

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________________________________
From: CLBS <clbs-bounces at admws.idaho.gov> on behalf of Amber Kauffman <Amber.Kauffman at tax.idaho.gov>
Sent: Thursday, February 14, 2019 4:13:31 PM
To: CLBS at admws.idaho.gov
Subject: [CLBS] Question on Effect of Conversion

A debt that arises after the date of petition but before the date of conversion from 13 to 7 is treated as if it were prepetition and could be discharged by the chapter 7 if otherwise dischargeable.  However, since the date of filing and commencement of the case otherwise does not change upon conversion, does that means a creditor with a post-petition, pre-conversion, debt is not stayed from collecting that debt by the automatic stay?

The reason I am asking is in regards to this section of 507(a)(8)(A):
(ii)assessed within 240 days before the date of the filing of the petition, exclusive of-
                ***
(II)  any time during which a stay of proceedings against collections was in effect in a prior case under this title during that 240-day period, plus 90 days;

I'm dealing with a case that was in Chapter 7 for 13 years, followed immediately by another Chapter 7, and am trying to determine if the post-petition pre-conversion tax debt was discharged by the second Chapter 7.

Thanks in advance!

Amber

Amber Kauffman
Deputy Attorney General
Idaho Office of the Attorney General
Contracts and Administrative Law Division * Idaho State Tax Commission
Phone: (208) 334-7542  * Fax: (208) 334-7844 amber.kauffman at tax.idaho.gov<mailto:amber.kauffman at tax.idaho.gov>

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