Local bankruptcy filings dropped 35% in a pandemic year that disrupted the national economy, according to U.S. Courts data. Some of the reasons? Stimulus checks and stalling courts.
Despite high rates of business closures and unemployment in a pandemic year, local bankruptcy filings dropped 35.2% in the 12-month period ending March 31.
Both non-business and business filings declined in the U.S. Sacramento Bankruptcy Court for the Eastern District of California, which includes the four-county Sacramento area. According to the Administrative Office of the U.S. Courts, new filings fell in all federal courts. But the decline in the Eastern District of California was slightly less than the national decrease of 38.1%.
Sacramento, El Dorado, Placer and Yolo counties registered a total of 2,867 new bankruptcy filings during the 12-month period. Out of those, 3.94% were business filings and 96.06% were non-business. Consumer filings normally make up the most bankruptcy filings, said Jamie Dreher, a partner at Sacramento-based law firm Downey Brand LLP, but businesses and non-businesses were largely able to stay out of bankruptcy because of relief funds, eviction moratoriums and delays in state court dockets.
More Bankruptcy News
Judge frets over ‘potential to end’ Boy Scouts amid chaotic bankruptcy
The judge overseeing the Boy Scouts of America’s bankruptcy on Wednesday offered her grim view of the status of the youth organization’s reorganization efforts, which have yet to lead to any support from former scouts who say they were sexually abused by Scouting leaders.
U.S. Bankruptcy Judge Laurie Selber Silverstein in Wilmington, Delaware indicated during a virtual hearing that she is prepared to move quickly on the remainder of the Boy Scouts’ Chapter 11 proceeding, which began in February 2020 in an attempt to resolve nearly 300 sex abuse lawsuits. But she also acknowledged the difficulty of proceeding with the organization’s request to begin soliciting votes on its proposed reorganization plan, which includes a settlement of more than 80,000 sex abuse claims, when it has yet to bring in any support from abuse survivors.
“I will say to solicit a plan that has no abuse survivor support is not an attractive option,” Silverstein said. “But neither is engaging in protracted litigation that has the potential to end the Boy Scouts as it currently exists.”
The judge will likely announce her ruling on the motion to begin vote solicitation next week.
The Boy Scouts, represented by White & Case, is at a critical point in its Chapter 11 case. The organization hopes to exit bankruptcy by the end of the summer. But doing so will be difficult without support from survivors and insurers, including insurance companies that believe some of the claims are fraudulent. Meanwhile, the organization’s cash is dwindling as its legal costs, which hit $100 million this year, continue to grow.
Under the proposed plan, the Boy Scouts would establish a trust to be funded by a mix of cash, artwork, insurance policies, and at least $425 million from local councils in exchange for releases against legal actions stemming from sex abuse allegations. One insurer, Hartford Financial Services Group Inc, has said it will contribute $650 million to the fund.
Recent Tax Court Case: Unassessed Taxes are Not Discharged in Bankruptcy
A recent Tax Court opinion demonstrates the complexities involved when a taxpayer attempts to discharge tax liabilities through bankruptcy proceedings. The case emphasizes the need for an attorney knowledgeable in both tax and bankruptcy cases to ensure that the the best, most-viable tax arguments are put forward in the proceedings.
A brief outline of the case is set forth below:
Barnes v. Comm’r, T.C. Memo. 2021-49 | May 4, 2021 | Lauber, J. | Dkt. No. 6330-19L
Opinion
Short Summary: The taxpayers challenged a proposed deficiency in the Tax Court related to their 2003 tax year. Prior to the Tax Court issuing an opinion, the taxpayers filed a voluntary chapter 11 petition in the U.S. Bankruptcy Court for the District of Columbia. The IRS participated in the bankruptcy proceedings and filed a proof of claim for tax deficiencies—however, the 2003 tax year was not included.
After the plan was confirmed, the IRS moved to lift the automatic stay to permit the Tax Court to render a decision on the taxpayers’ 2003 tax year. The bankruptcy court granted the motion, and the Tax Court held that taxpayers owed deficiencies, penalties, and additions to tax for 2003 as determined in the notice of deficiency.
The IRS later assessed the 2003 liability and issued a Notice of Federal Tax Lien for the taxpayers’ 2003, 2008, and 2009 tax years. The taxpayers filed a timely request for a Collection Due Process (CDP) hearing. The IRS Settlement Officer agreed to a partial release of the NFTL, finding that the 2008 and 2009 tax liabilities were including in the taxpayers’ bankruptcy. However, the SO concluded that the lien filing as to 2003 was appropriate
Cannabis Businesses Struggle With Bankruptcy In The Absence Of Federal Banking
It’s well known that marijuana companies cannot avail themselves of the protections afforded by U.S. Bankruptcy Courts. The National Law Review recently detailed how these courts are doubling down on disallowing cannabis companies to obtain bankruptcy relief.
Ancillary companies that service or provide materials or equipment to marijuana companies are also denied these options by U.S. Bankruptcy Courts. This is very troubling because providing a good or service to a licensed marijuana company should in no way preclude bankruptcy protection. Still, many courts and the U.S. Department of Justice (USDOJ) disagree.
Further, the US DOJ put out a MEMO suggesting why it believes this should be the case. So how does a financially struggling cannabis business utilize the court system to obtain some breathing room or even a chance at redemption and success on a new path? Perhaps the answer lies in the legal concept of a “receiver.”
A receiver is a person appointed as custodian of a person or entity’s property, finances, general assets, or business operations. Receivers can be appointed by courts, government regulators, or private entities. Receivers seek to realize and secure assets and manage affairs to pay debts.
Judges can appoint a receiver following the filing of an application, or petition, with the court. Under certain circumstances, all those interested in a case can join together, and in the event that the court has jurisdiction over the property and the parties, an appointment can proceed upon their consent. In a scenario where there are financial disputes which give rise to standing in a court of law, a receiver can be pursued – especially in the absence of bankruptcy protection.
