Frequently Asked Questions
Bankruptcy
Q: May bank accounts of a Chapter 11 debtor
be attached for delinquent post-petition taxes before
the plan of reorganization is confirmed?
A: No. Attaching the bank accounts violates the
automatic stay provisions of 11 U.S.C. section 362(a)(3),
which prohibit any act to obtain possession of property
of the estate. These accounts are property of the
estate. The post-petition taxes are first priority
administrative expenses, which must be paid in full,
with interest at the Machinery Act rate, on the
effective date of the plan of reorganization. The
taxing unit’s attorney should prepare a Motion
for Allowance and Payment of an Administrative Expense
to recover the post-petition taxes.
Q: A taxpayer in bankruptcy requests a moving
permit for a manufactured home for which he owes delinquent
taxes. May the tax collector refuse to issue the moving
permit unless the taxpayer pays the delinquent taxes?
A: No. A court is likely to consider the tax collector’s
refusal to issue the permit as a violation of the
automatic stay provisions of 11 U.S.C. § 362,
rather than the mere enforcement of a regulatory
power, which is permitted by 11 U.S.C. § 362(b)(4).
The relevant inquiry is whether the underlying purpose
of the action is regulatory or an attempt to collect
a prepetition debt. See In re Peterkin, 102 B.R.
50 (E.D.N.C. 1989) (examining underlying purpose
of Employment Security Commission’s maintenance
of civil contempt action). The underlying purpose
and focus of the tax collector’s attempt to
enforce the moving permit requirement is unlikely
to be viewed as anything other than an attempt to
collect delinquent prepetition taxes.
By conditioning issuance of the moving permit on
the debtor’s payment of delinquent taxes owed
on the manufactured home, the tax collector exposes
the taxing unit to liability for damages, including
attorney’s fees incurred by the taxpayer in
challenging the tax collector’s action. See
id. at 51. Where a tax collector is aware that a
taxpayer is in bankruptcy, knows there is a question
about whether her actions violate the automatic
stay, and acts nonetheless, if her actions are later
found to violate the stay, that violation will be
considered willful, no matter how cooperative she
was in the course of the litigation. See id. at
52.
Q: : June Dale last renewed the registration
on her 2000 Ford Explorer in Dec. 2001. June received
her tax bill in April 2002, but never paid it. June
lives next door to Tina Tax Assessor, the tax assessor
for Onslow County. In Feb. 2003, Tina noticed that
the registration on June’s Explorer had expired.
Tina discovered June’s vehicle and listed it
as an unregistered vehicle for 2003 taxes. June’s
vehicle was again listed as an unregistered vehicle
for 2004 taxes. June owns no real estate in Onslow
County. June filed a petition for Chapter 7 bankruptcy
on June 1, 2004. June’s case was a “no-asset”
case, so no claims were filed. June was discharged
from bankruptcy on September 1, 2004.
June has recently been elected county commissioner.
For which taxes may Tina garnish June’s wages?
A: June remains personally liable for priority
tax claims, which are unsecured claims for prepetition
taxes that were payable without interest within
one year of the filing of the bankruptcy petition.
All of these taxes are unsecured as June has no
real property in Onslow County and none of her personal
property had been levied upon or attached prior
to bankruptcy to secure payment of the taxes. All
of these taxes are prepetition as they were assessed
before the bankruptcy petition was filed. The 2001
taxes were assessed in December 2001, when June
renewed the registration on the Explorer. The 2003
taxes were assessed on January 1, 2003, and the
2004 taxes were assessed on January 1, 2004.
The 2001 taxes were last payable without interest
on April 30, 2002. This is more than one year before
June 1, 2004 -- the date June filed for bankruptcy.
The 2001 taxes are thus not priority claims, and
June is discharged from personal liability for the
2001 taxes.
The 2003 taxes were last payable without interest
on Jan. 5, 2004, within one year of the bankruptcy
filing. The 2004 taxes were last payable on January
5, 2005, also within one year of the bankruptcy
filing.
The 2003 and 2004 taxes on June’s Explorer
thus constitute priority tax claims. June remains
personally liable for these taxes and her wages
may be garnished to satisfy these tax claims.
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