A Real Life Monty Brewster: Can You Spend $30 Million To Escape From the IRS?

Author: Dan Stroh, Associate Member, University of Cincinnati Law Review

A current circuit split poses an imperative question: Can a hypothetical multi-millionaire, like Monty Brewster, spend his millions frivolously without fear of a tax penalty following him through bankruptcy?[1] The United States Bankruptcy Code generally allows debtors to discharge all debts arising prior to filing of bankruptcy.[2] One exception to this general rule prohibits a debtor from discharging any tax debt “with respect to which the debtor made a fraudulent return or willfully attempted in any manner to evade or defeat such tax.”[3] However, the Ninth and Tenth Circuits disagree on the debtor’s degree of culpability required to deny a discharge of indebtedness under this exception.[4] Continue reading “A Real Life Monty Brewster: Can You Spend $30 Million To Escape From the IRS?”

Bankruptcy Discharges: Why Courts Should Discharge the Civil Contempt Standard for “Refusals”

Author: Stephen Doyle, Associate Member, University of Cincinnati Law Review

Because of the Great Recession beginning around 2008, the number of bankruptcy filings increased by nearly 150% between 2008 and 2010, before leveling off in recent years.[1] With the increased caseload on bankruptcy courts came increased confusion about some of the Bankruptcy Code’s provisions. Recently, courts have split over the requisite level of intent when a debtor “refuses” to comply with an aspect of the case as the term applies to revocation of a discharge of debt.[2] The Fourth, Ninth, Tenth, and Eleventh Circuit Courts of Appeal have held that the party seeking revocation of a discharge must demonstrate willful or intentional misconduct on behalf of the debtor,[3] while all but one of the bankruptcy courts in the Sixth Circuit have held that the standard mirrors that of civil contempt.[4] The former application—the willfulness standard—is more appropriate to such refusals given the purpose of the Bankruptcy Code and the meaning of the word “refuse.”

Continue reading “Bankruptcy Discharges: Why Courts Should Discharge the Civil Contempt Standard for “Refusals””

Filing Time-Barred Claims in Bankruptcy Subjects Creditors to FDCPA Sanctions in the Eleventh Circuit (and Maybe the Seventh)

Author: A.J. Webb, Articles Editor, University of Cincinnati Law Review

Another clash between the Fair Debt Collection Practices Act[1] and the Bankruptcy Code[2] is on the horizon. A recent decision by the Eleventh Circuit Court of Appeals might lead to additional liabilities against creditors seeking to collect on debts from consumers who file for bankruptcy. In July, the Eleventh Circuit held that debt collectors are barred from filing proofs of claims in bankruptcy when those claims are based on unenforceable consumer debts under state law.[3] This issue is likely to be addressed by the Seventh Circuit Court of Appeals in a separate proceeding currently underway in the District Court of the Southern District of Indiana.[4] In order to fulfill the policy aims of the FDCPA and protect consumer debtors from abusive and deceptive debt collection practices, the Seventh Circuit should follow suit and adopt the holding of the Eleventh Circuit.

Continue reading “Filing Time-Barred Claims in Bankruptcy Subjects Creditors to FDCPA Sanctions in the Eleventh Circuit (and Maybe the Seventh)”

Protecting Attorneys and Jeopardizing Creditors: In re Thelen LLP and Rejection of the “Unfinished Business Rule”

Author: A.J. Webb, Articles Editor, University of Cincinnati Law Review

In recent years, numerous multinational law firms have declared bankruptcy amidst dwindling demand for legal services. Generally, the bankruptcy of a law firm is similar to that of any other debtor: a trustee must carefully scrutinize the debtor’s assets, ensuring their availability for distribution to outstanding creditors. These assets are essential in repaying the partnership’s previous debts.

The New York Court of Appeals, however, holds a different view of how a bankrupt law firm should be treated, at least with respect to legal fees generated after the law firm declares bankruptcy. In a decision this past July, the Court of Appeals held that the “unfinished business” rule of partnership law, which provides that any “profits arising from work begun by former partners of dissolved law firms are a partnership asset that must be finished for the benefit of the dissolved partnership,” is inapplicable to pending hourly fee matters.[1] Fees generated after the declaration of bankruptcy concerning pending matters prior to the firm’s bankruptcy belong to the attorney, not the bankruptcy estate.[2] This single decision by the Court of Appeals will have major ramifications in bankruptcy law. While rejecting the unfinished business rule increases attorney and client independence, it seriously harms a creditor’s chance of recovery from the firm in bankruptcy.

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Don’t Let the Door Hit You on the Way Out: Smith v. Robbins (In re IFS Financial Corporation) [1]

Author: A.J. Webb, Articles Editor, University of Cincinnati Law Review

In November 2011, W. Steve Smith traveled to New Orleans, Louisiana, to attend a bankruptcy hearing for IFS Financial, for which he served as a bankruptcy trustee in a chapter seven liquidation.[2] While the hearing lasted only one day, Smith extended his stay by three additional days. This decision ultimately cost him his job as a trustee on all of his bankruptcy cases.[3] The Bankruptcy Court for the Southern District of Texas removed Smith as a trustee under Bankruptcy Code (Code) § 324, a provision that allows the court to remove a trustee for cause after notice and a hearing.[4] The District Court for the Southern District of Texas recently affirmed this decision.[5] The decision by the district court highlights three important issues with regard to bankruptcy trustees. First, it demonstrates the willingness of courts to remove trustees for relatively minor improprieties. Second, it demonstrates the fundamental principle of a trustee’s job in bankruptcy: to protect estate assets and ensure their distribution to creditors. Finally, it raises the question as to whether trustees have a “right” to their job under the Code or the United States Constitution.

Continue reading “Don’t Let the Door Hit You on the Way Out: Smith v. Robbins (In re IFS Financial Corporation) [1]”