Many, many years ago when the world was young and the biggest bailout around was actually a cleanup of the S & L mess; I was a young lawyer working in an ivory tower briefing issues for RTC, FDIC and FSLIC — among other deep-pocketed clients.   One of those briefs was on whether or not the doctrine of marshalling of assets could be used against the Government.  I don’t remember the details.  I just remember being fascinated by the term “marshalling assets”.  I was young.

Anyway, earlier this month in Massachusetts a court has held that the U.S. Government (IRS) can be forced to marshall its assets in order to allow for a distribution to the unsecured creditors.  It is a creditor’s decision in a bankruptcy case, but I thought it was kind of cool anyway.

Ok, so just in case you didn’t have to research this when you were a young lawyer locked in a library for days on end, marshalling assets is a doctrine that applies when one creditor has more than enough collateral available and another creditor only has access to some of that collateral.  By forcing the over-secured creditor to go after the collateral on which it has an exclusive claim first, more of the other assets are available for other creditors.

In the Massachusetts case the Debtor had exempt equity in a homestead and another asset that was not exempt.  An IRS lien does attach to exempt property (remember, they rank with death and taxes).  Obviously, the unsecured creditors couldn’t reach the Debtor’s exempt homestead equity.  So, the Bankruptcy court required the IRS to go after the exempt homestead equity first.  Then, it could finish satisfying its secured claim from the non-exempt asset.  The remainder of the non-exempt asset would then be available for a distribution to the unsecured creditors.

The case is Houghton v. United States (in re:  Szwyd), BK No. 05-50837-HJB, Adv. No. 06-04274 in the Bankruptcy Court for the District of Massachusetts, Western Division.  The case was decided September 8, 2008.

Elaine

Evidently, you can teach an old dog new tricks.

I have a case pending with a significant pre-petition income tax liability and complicated tax transcripts.  I’ve read the statute, I’ve sat through the CLE lectures.  I missed something.  Offers of compromise only toll one of the three deadlines for determining dischargeability of taxes in a Bankruptcy.

Anybody care to guess which one?

Elaine

If I hear that one more time I am going to scream. Ok, so usually what I hear is, “but <so and so> told me that I make too much money to file for bankruptcy.”

First of all, the only strictly true statement is that no one makes too much money to file for Bankruptcy.

What most people mean is that they believe that they make too much money to qualify for a Chapter 7 Bankruptcy filing. The problem with that statement is that qualifying for a Chapter 7 actually has more to do with what kinds of debt you have and what you actually spend your money on than it does with how much money you make.

The root of all of this misinformation is something called the Means Test. The Means Test was ostensibly created as a kind of gatekeeper for Chapter 7 Bankruptcy filings. I say ostensibly. I don’t think that was the real reason, but hey what do I know about politics and lobbyists paid by institutional creditors. The Means Test is an 8-page exercise in accounting trivia. It starts with income, then swings through expenses and certain kinds of debt. Having a problem passing the Means Test? Wait a few months to file and CHANGE THE THINGS YOU SPEND YOUR MONEY ON. Yep, it really can be that simple.

If you have been told that you make too much money to file for Bankruptcy and feel that you need to anyway, call a member of the National Association of Consumer Bankruptcy Attorneys for a second opinion.

Elaine