Bankruptcy - NCBarBlog

4th Circuit Overrules Own Precedent, Holds Certain Primary Residence Claims Can Be Crammed Down in Chapter 13 Bankruptcies

The general rule in bankruptcy is that debtors cannot cram down loans secured only by mortgages on their primary residences. But wait, “what’s a cram down?” you ask. For non-bankruptcy folks, a cram down is where a debtor bifurcates a creditor’s claim into a secured claim (in the amount of the value of the property) and an unsecured claim (for the balance of the outstanding debt above the value of the property), paying the secured claim in full and paying the unsecured claim pro rata along with other general unsecured creditors. Take this example: at the time of bankruptcy filing, a lender is owed $150,000, but the property is worth only $100,000. The general rule in bankruptcy is that if the property is the debtor’s primary residence and the lender’s only collateral, the lender has a secured claim of the full $150,000. Otherwise, the debtor could cram the lender down, giving the lender a secured claim of only $100,000 that would be paid in full, and an unsecured claim of $50,000 that would be paid pennies on the dollar. Thus, we can see the obvious benefit to debtors and the obvious detriment to creditors of the powerful cram down option.

Domestic Support Obligations In Bankruptcy

Family Law Section

By Nick Brown

Experienced family lawyers are adept at helping their clients secure alimony, child support, property settlements and other financial relief. But what happens to these claims when the party obliged to make payments files bankruptcy?

This article takes a look at how domestic support obligations are treated in a bankruptcy case. The article also highlights some common issues for dispute and ways to protect your client.

What Is a Domestic Support Obligation?

The “domestic support obligation” is a defined term in bankruptcy law, referring to a debt “in the nature of alimony, maintenance or support” that is owed to a current or former spouse or child. In order to qualify, the obligation must be established under a formal agreement, court order or state law.[1]

Common examples of domestic support obligations are alimony and child support. On the other hand, property divisions under equitable distribution orders typically do not qualify. In some instances, the nature of the claim is uncertain which could lead to litigation.

Discharging Individual Income Taxes In Bankruptcy: Five Easy Pieces

Tax Section

By Heather Culp

A well-timed bankruptcy can be a powerful arrow in the quiver of a taxpayer with burdensome tax debt. Many lawyers and tax professionals are not aware a taxpayer’s personal liability for individual income tax debt can be discharged in bankruptcy, if the answer to each of the following five questions is YES:

Have more than three years passed since the tax return giving rise to the tax liability was due, including applicable extensions? 11 U.S.C. §507(a)(8). Individual income taxes for the period ending 12/31/13 are thus the most recent taxes that could be discharged, as of May 2017 (but not until October 2017 if the taxpayer obtained an extension of time in which to file the return). Certain taxpayer actions can toll and thus extend this three-year period. For example, a prior bankruptcy tolls this three-year period for the length of the automatic stay plus 90 days; a request for a collection due process hearing (“a CDP request”) tolls the three-year period for the time the hearing is pending during the three-year period, plus 90 days. See language immediately following 11 U.S.C. §507(a)(8)(G).

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