November 10, 2007
IRS Standards Announcement
This came from the IRS Newswire:
WASHINGTON — On October 1, 2007, the Internal Revenue Service issued the 2007 allowable living expense standards.
Allowable living expense standards, also known as collection financial standards, are used to determine the ability of a taxpayer to pay a delinquent tax liability. For purposes of federal tax administration the standards are effective Oct. 1, 2007.
This year the standards have been redesigned to incorporate:
• a new category for out of pocket health care expenses
• the elimination of income ranges for national standards for food, clothing and other items
• a nationwide set of tables for national standard expenses, eliminating separate tables for Alaska and Hawaii
• an expanded number of household categories for housing and utilities
• an allowance for cell phone costs in housing and utilities
• equal allowances for first and second vehicles under transportation expenses
• fewer Metropolitan Statistical Areas for vehicle operating costs
• a separate nationwide public transportation allowance
The Allowable Living Expense standards rely on data from the Bureau of Labor Statistics, the Medical Expense Panel Survey and other governmental surveys of actual consumer expenditures and provide a basis for allowances. The IRS adjusts survey data for inflation according to the Consumer Price Index.
Expense information for use in bankruptcy calculations can be found on the Department of Justice U.S Trustee Program Web site. For bankruptcy purposes, the effective date for the new standards will be Jan. 1, 2008.
November 8, 2007
Avoidance Actions for the Benefit of Whom?
Two recent cases have discussed the concept of "recovery for the benefit of the estate" and have permitted avoidance actions to proceed even though nothing will be paid to unsecured creditors irrespective of the result. Both results are probably right given the specific facts of the case.
In Calpine Corp.v. Rosetta Resources, Inc. (In re Calpine), --- B.R. ---, 2007 WL 3119786 (Bkrtcy.S.D.N.Y. Oct. 27, 2007) Judge Burton Lifland, considering a FRBP 12(b)(6) motion, ruled that the debtor may proceed in its attempt to avoid its own prepetition transfer of assets to certain insiders even though unsecured creditors were going to be paid in full with interest irrespective of the result. He agreed that unsecured creditors must receive some benefit from the recovery but that does not necessarily mean in the form of payment. Here, some creditors were receiving stock under the Plan of Reorganization and therefore to the extent that the recovery benefited the debtor, it benefited the unsecured creditors. In any event, he agreed that the debtor would have to show benefit at trial to prevail.
In Gonzales v. Conagra Grocery Products (In re Furr's Supermarkets, Inc.) 373 B.R. 691 (10th Cir.BAP (N.M.) Aug. 2007) the BAP affirmed a recovery against the recipient of a preference even though the funds would go only to a secured creditor which had a lien on avoidance actions and to administrative expenses. The BAP said that payment of administrative expenses incurred before and after the conversion of the case from chapter 11 to chapter 7 was a "benefit to the estate." The trustee anticipated significant recovery after payment of the secured creditor which funds would then go to administrative expenses and that was sufficient.
November 6, 2007
Median Income by Family Size by State
The U.S. Trustee's Office has posted the new median income figures for each state effective October 15, 2007. New Jersey has the highest median income, $54,000 for a one person household, and Mississippi the lowest, $29,000.
Now if they can figure out what is a household.
The relevance of the median income is, of course, that it determines who has to do the means test computations to see whether abuse is presumed or not. Debtors whose income for the six months prior to filing is below the median do not have to do the means test headache. In chapter 13 cases, above-median debtors compute the chapter 13 plan payments using the means testing formulas rather than looking to actual income and expenses. At least that's what the code says. Since the end result of the means test computations is often a completely artificial number, the chapter 13 plan payment computation is all over the board.
The various IRS charts and a nifty program to calculate the hypothetical chapter 13 costs are also posted on the UST site.
November 4, 2007
San Diego Catholic Diocese Bankruptcy over
Judge Louise DeCarl Adler dismissed the San Diego Catholic diocese bankruptcy case on November 1, 2007 at the request of the diocese. According to the San Diego Union-Tribune, she intended to grant the motion without comment until she received a packet from her "former parish" apparently requesting a contribution to help pay the settlements. She said the financial information in the packet was "disingenuous" and the less than candid. She said again that the diocese should not have filed bankruptcy in the first place. It has plenty of property to sell to pay the claims in full in her opinion. According to the article, a diocese spokesman stood by the disclosure and said it was not disingenuous.
The Union-Tribune has a huge archive of documents on its website relating to the bankruptcy case including the 176 page report filed by Todd Neilsen on July 30, 2007. The report analyzes in great detail the financial condition of the San Diego diocese. The Union-Tribune website can be accessed here.