The Bankruptcy Code is federal law. It affords debtors protections - including the automatic stay and debt discharge injunction - that hold creditors at bay.

The Fair Debt Collection Practices Act (“FDCPA”) is also federal law. It contains limitations on what a debt collector can do when attempting to collect a debt.

Because debts - and more particularly attempts to collect those debts - drive people into bankruptcy, bankruptcy courts are sometimes forced to grapple with questions of how the Bankruptcy Code and FDCPA interact and impact each other.

Sixth Circuit Affirms Bankruptcy Court Order Allowing Amended Exemptions Following Re-Opening of Case

In a Chapter 7 bankruptcy case, a debtor is required to file a schedule listing all of the debtor’s property. This includes cash, hard assets such as furniture and cars, as well as intangibles such as causes of action or potential causes of action. The Bankruptcy Code allows debtors to “exempt” certain types of property from the estate, enabling them to retain exempted assets post-bankruptcy.

On May 4, 2015, the U.S. Supreme Court decided Bullard v. Blue Hills Bank, No. 14-116, a case which deals with issues of finality and appealability of orders in bankruptcy proceedings. In a unanimous opinion written by Chief Justice Roberts, the Court held that a bankruptcy court’s order denying confirmation of a Chapter 13 debtor’s proposed repayment plan is not a final order and thus is not immediately appealable.

BACKGROUND

When an individual contemplates filing for bankruptcy protection, he or she has a few options. One is to file a Chapter 7 case, and another is to file a Chapter 13 case. In a Chapter 7, all of a debtor’s non-exempt assets are transferred to a bankruptcy estate to be liquidated and distributed to creditors. In a Chapter 13, the debtor retains assets and makes payments to creditors according to a court-approved plan.

Upon the filing of a bankruptcy petition, an automatic stay goes into effect which provides a debtor with immediate protection from collection efforts by creditors. But the automatic stay is not without limitations.

There has been much discussion in the media in the past year about the massive amount of professional fees that have been wracked up during the City of Detroit's Chapter 9 bankruptcy. There is always great interest - and debate - about such fees due to the nature of the process: insolvent individuals or companies with no place left to turn file for bankruptcy, creditors take a "haircut" on their claims, and the lawyers get paid. Or so the story goes. As with any complex process, though, there is plenty of nuance that gets lost in the wash, and often is more to the story.

The Upstream C Reorganization

In the late 20th century, the IRS made a combination of unrelated decisions resulting in a proliferation of upstream C reorganizations. First was the repeal of the Bausch & Lomb rule, meaning that the equity held by a parent corporation in its subsidiary could count as continuity of interest, thus allowing the liquidation of a subsidiary to be treated as an upstream C reorganization. Second, the invention of the check-the-box regulations made subsidiary liquidations (and hence upstream reorganizations) so much easier.

LTR 201240017 is the world’s longest letter ruling, 111 pages in PDF format. Not surprisingly, it is a Section 355 ruling. It was issued three-and-a-half months after the original submission, with those dates bridging Christmas and New Year’s Day. There were seven additional submissions from the taxpayer in the interim. The release of the ruling was delayed for a couple of months.

The two most recent decisions of the Supreme Court involving federal taxes illustrate how a conservative approach to statutory interpretation tends to prevail, but only with great effort, and changing constituencies.

Hall v. United States

LTR 201214013 applies a 55 year old ruling to treat a subsidiary liquidation as a downstream D reorganization, thus preserving the basis in the liquidating subsidiary’s stock, which would not be the case if it had liquidated under section 332.

Facts. Holdco owns Parent, which owns Target Parent, which owns Target Sub. Holdco wants to wind up owning Target Sub directly, but evidently did not want to lose its basis in its Parent stock and wanted to maintain Parent in existence as an entity.