Understand the complexities and nuances of the Bankruptcy Code to better advise clients and prepare for court.
By Diane Davis
Nov. 18 — The Exchange, an agency of the federal government, improperly posted the income tax refund of an active duty U.S. Military member to her account after she filed for Chapter 7 relief and must pay the debtor sanctions ( In re Parrish , 2016 BL 381971, Bankr. W.D. Ky., No. 16-32030(1)(7), 11/16/16 ).
Judge Joan A. Lloyd of the U.S. Bankruptcy Court for the Western District of Kentucky Nov. 16 concluded that the Exchange’s violation of the automatic stay was inadvertent but awarded the debtor $250 in attorneys’ fees and $200 in sanctions.
Debtor Natasha Parrish defaulted on two lines of credit with the Exchange, which is an instrumentality of the U.S. Army and Air Force within the Department of Defense. The Exchange placed the delinquent debts into the Treasury Offset Program that allows the U.S. Treasury to offset any amount owed to a federal agency against any federal payments such as tax refunds.
Using a collection agency, the Exchange posted the debtor’s tax refund of $5,225 to the Exchange’s account with the Internal Revenue Service after the debtor had filed for Chapter 7 bankruptcy. In Chapter 7, a debtor’s nonexempt assets are liquidated by a trustee, and the proceeds are distributed to creditors.
Under Bankrupty Code Section 362(7), a bankruptcy petition operates as a stay as to the “setoff of any debt owing to the debtor that arose before the commencement of the case under this title against any claim against the debt,” the court said.
The right to setoff exists, the court said, because the obligations owed by the debtor to the Exchange and the refund due to the debtor are mutual. However, the right to effect a setoff is stayed by the automatic stay, the court said.
The Exchange’s right to setoff doesn’t excuse its failure to seek relief from the automatic stay, the court said.
The violation of the automatic stay was inadvertent because there was a delay in communication between the Exchange’s collection agency and the IRS, the court said. As a result, the court awarded the debtor sanctions as compensation.
Julie Ann O’Bryan, Louisville, Ky., represented debtor Natasha Parrish; Chapter 7 Trustee Michael E. Wheatley, Prospect, Ky .; Asst. U.S.Trustee Charles R. Merrill, Louisville, Ky.
To contact the reporter on this story: Diane Davis in Washington, D.C. at DDavis@bna.com
To contact the editor responsible for this story: Jay Horowitz at JHorowitz@bna.com
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)