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Governmental Agencies Required to Receive Notice: Bankruptcy Code Section 521(a) and Bankruptcy Rule 1007(a) require a debtor to file a list containing the name and address of each creditor, unless a schedule of liabilities (which essentially includes this information) is filed. Unless the court enters an order limiting notice, all notices are sent to these creditors, including the notice of the commencement of a case under the Bankruptcy Code. If the case is a chapter 11 case, then Bankruptcy Rule 2002(j) provides that notices to the United States shall be mailed to, among others, the District Director of Internal Revenue for the district in which the case is pending. Further, some jurisdictions have adopted local rules requiring that a debtor provide notice to a specified Internal Revenue Service office. See, e.g., Note to Rule 1002 of the Local Bankruptcy Rules for the United States Bankruptcy Court for the Northern District of Texas (specifying that the mailing matrix should include the Special Procedures Staff of the Internal Revenue Service and providing the address). It should be noted that Bankruptcy Rule 7004(b)(6) addresses service of process in an adversary proceeding and is thus inapplicable to the notice issues raised in these proposals.
Content of Notice: Bankruptcy Code Section 342(a) provides that notice shall be given of the commencement of a case under the Bankruptcy Code. Bankruptcy Rule 9009 states that the "Official Forms prescribed by the Judicial Conference of the United States shall be observed and used with alterations as may be appropriate." The Official Forms include forms to be used to notify creditors of the commencement of the case, the meeting of creditors and certain deadlines set by the bankruptcy court. Bankruptcy Code Section 342(c) provides that if notice is required to be given to a creditor under the Bankruptcy Code (this includes, but is not limited to, the notice of commencement of the case), the Bankruptcy Rules or an order of the Court, then the "notice shall contain the name, address and taxpayer identification number of the debtor, but the failure of such notice to contain such information shall not invalidate the legal effect of such notice."
Bar Date With Respect to Claims Filed By Governmental Agencies: Bankruptcy Code Section 502(b)(9) and Bankruptcy Rules 3002(c)(1) and 3003(c)(3) provide that a proof of claim filed by a governmental unit is timely filed if it is filed not later than 180 days after the date of the order for relief.
Effect of Failure to Give Proper Notice: Bankruptcy Code Section 523(a)(3) provides that an individual debtor is not discharged, under certain circumstances, from a debt that the debtor fails to list or schedule under the name of the creditor to whom such debt is owed, if known by the debtor.
Effect of Failure to Provide Sufficient Information: Although the Bankruptcy Code and the Bankruptcy Rules do not generally address a debtor's failure to provide sufficient information, from a practical standpoint, creditors and other parties in interest are not prevented from seeking such information. For example, within a reasonable time after a case is commenced under the Bankruptcy Code, the United States Trustee convenes and presides over a meeting of the debtor's creditors. At this meeting, the creditors have an opportunity to orally examine the debtor. Moreover, if a creditor is unable to obtain from the debtor information in the debtor's possession which the creditor needs in order to complete its proof of claim or to determine whether or not it even has a claim, then the creditor can seek relief from the bankruptcy court. Further, Bankruptcy Code Section 523(a)(1) provides that an individual debtor will not be discharged w ith respect to tax claims or customs duties under certain circumstances related to filing required returns.
Commissioner Shepard proposes that either the Bankruptcy Code or the Bankruptcy Rules be amended to require a debtor to send all notices sent to creditors to certain government agencies at locations to be specified by the government agencies. In addition, he would amend either the Bankruptcy Code or the Bankruptcy Rules to require that any such notices: (a) contain meaningful and sufficient information to enable the government agency to determine why the notice is being sent; (b) include identifying information such as the employer identification number, taxpayer identification number, social security number, and license numbers; (c) include the name of the debtor, any predecessors in interest, merged corporations and all present and former a/k/a's and d/b/a's. Further, he would amend either the Bankruptcy Code or the Bankruptcy Rules to require that (a) any such notices related to claims specify the debtor, successor in interest or other named predecessor who incurred the obligation upon which the claim is based; (b) any such notices related to environmental clean-up costs specify each particular property involved; and (c) any such notices related to ad valorem property taxes specify each particular property involved. Finally, he would amend Bankruptcy Code Sections 342, 362 and 363 to include strong sanctions (such as allowing late claims and denying the debtor's discharge on claims) for failure to satisfy the above notice requirements. See Santa Fe Discussion Issues, p. 21, Item IVA1.
Commission Track Number 106. Commissioner Shepard proposes that Bankruptcy Code Section 727(c) be amended to provide that if a debtor fails to provide notice to a creditor as required by the Bankruptcy Code and the Bankruptcy Rules, then the time limit in which a creditor must object to discharge or file a motion to revoke discharge will not begin to run until the affected creditor receives proper notice. Further, he would amend section 727(c) to provide that knowing or intentional failure to provide proper notice under the Bankruptcy Code and the Bankruptcy Rules is grounds for barring discharge. See Santa Fe Discussion Issues, p. 22, Item IVA2.
Commission Track Number 109. Commissioner Shepard proposes that either the Bankruptcy Code or the Bankruptcy Rules be amended to provide that a taxing authority is entitled to an exception to the bar date or to a nondischargeability determination if the debtor failed to provide the taxing authority with sufficient information to determine the nature and extent of potential claims. Further, he would amend either the Bankruptcy Code or the Bankruptcy Rules to provide an exception to the bar date if the debtor failed to timely file returns or provide required information. See Santa Fe Discussion Issues, p. 22, Item IVA3.
Commission Track Number 105: The Task Force supports the proposal to amend either the Bankruptcy Code or the Bankruptcy Rules to require a debtor to send all notices sent to creditors to certain government agencies at locations to be specified by the government agencies, provided that the addresses are either incorporated into the Bankruptcy Rules, the local rules or are otherwise available from the bankruptcy court. With respect to the proposal to include additional information in the notice, the Task Force agrees that perhaps the notice should include some additional information; however, the Task Force does not support the sweeping requirements contained in the proposal.
Commission Track Number 106: The Task Force opposes this proposal.
Commission Track Number 109: The Task Force opposes this proposal.
See also our response to Commission Track Number 216, infra.
Commission Track Number 105: As noted above, the Task Force supports the proposal to amend either the Bankruptcy Code or the Bankruptcy Rules to require a debtor to send all notices sent to creditors to certain government agencies at locations to be specified by the government agencies, provided that the addresses are either incorporated into the Bankruptcy Rules, the local rules or are otherwise available from the bankruptcy court.
With respect to the proposal regarding information to be included in any notices, Bankruptcy Code Section 342 already requires the debtor to include its taxpayer identification number in any notices. To the extent other information is readily available to the debtor, such as the debtor's employer identification number, social security number, license number, known present and former a/k/a's and d/b/a's and the location of real property subject to ad valorem taxes, then the Task Force supports expanding the requirement under Section 342(c) to require that notices include this information. However, the Task Force believes that the provision in Bankruptcy Code Section 342(c) that the failure to include this information in a notice "shall not invalidate the legal effect of the notice" should continue in effect. While a debtor should be required to provide this information if it is available, the debtor should not be penalized for failure to provide this information if it is not readily available. If the debtor deliberately excludes available information, then a creditor or other party in interest may request that the bankruptcy court sanction the debtor in a suitable manner. Such sanctions should be determined by the bankruptcy court in light of the applicable circumstances.
The Task Force does not support the proposal that (a) notices should contain meaningful and sufficient information to enable the government agency to determine why the notice is being sent; and (b) any notices related to claims specify the debtor, successor in interest or other named predecessor who incurred the obligation upon which the claim is based. It is unclear what is intended by "meaningful and sufficient information". Moreover, this proposal appears to require a debtor to suggest potential areas of tax and environmental liability, regardless of whether the debtor believes such claims are valid. Further, the purpose of a notice is to allow a creditor to participate in the process. Debtors should not be required to determine the nature, extent, validity and amount of a governmental agency's claims. So long as the government agency has notice of the filing, basic information regarding the debtor (such as the debtor's taxpayer identification number and the location of its real property), then the government agency should be able to determine the nature, extent, validity and amount of its claim, if any.
Finally, the Task Force does not support the requested sanctions for failure to comply with notice requirements. Bankruptcy courts should have the discretion, as they do now, to sanction a debtor by allowing a late claim or disallowing the discharge of a claim under appropriate circumstances. This should not be mandated by the Bankruptcy Code.
Commission Track Number 106: The Task Force believes that this proposal raises several concerns. First, with respect to extending the time in which a creditor must object to discharge or file a motion to revoke a discharge, the proposal does not impose a time limit. Accordingly, a debtor will never achieve a fresh start. Conceptually, under this proposal, a creditor who was not noticed could come forward twenty years after a bankruptcy case has been closed and file a motion to revoke the discharge. As a result, following a bankruptcy filing, no one would be safe doing business with or loaning money to a debtor. Second, the proposal is overly broad with respect to amending Bankruptcy Code Section 727(c). Essentially, the proposal contemplates turning the denial of discharge provision in Bankruptcy Code Section 523(a)(3) with respect to specific claims into a blanket denial of discharge under Bankruptcy Code Section 727(c). This expansion of the denial of discharge is simply unwarranted. Third, if a creditor has not received formal notice of a bankruptcy filing but has actual knowledge of the filing, then the creditor should be required to come forward and participate in the bankruptcy case. The proposal contemplates that a creditor without formal notice, but with actual knowledge, could wait until the bankruptcy case has been closed and then seek to revoke the debtor's discharge. This is patently unfair. A creditor should not be allowed to sit on its rights and then, perhaps even years later, seek revocation of the discharge.
Commission Track Number 109: This proposal is simply unjustified. If a debtor fails to provide a taxing authority with sufficient information to determine the nature and extent of potential claims, then the taxing authority should seek relief from the bankruptcy court in the form of a motion to compel the production of documents, a subpoena duces tecum or a 2004 examination. If the debtor continues to fail to provide the requisite information, then it is within the bankruptcy court's discretion to award sanctions. Further, Bankruptcy Code Section 523(a)(1) provides that an individual debtor will not be discharged with respect to tax claims or customs duties under certain circumstances related to filing required returns.
With respect to contingent claims, such as a bankruptcy involving an individual responsible person who could be liable for unpaid employment taxes, the government agency is entitled to file a contingent claim in the individual's bankruptcy case. The proposal contemplates that the individual debtor must not only notify the government agency of the bankruptcy filing, but also of this contingent claim. It is impractical and unduly burdensome to require an individual debtor to review the tax laws and identify every conceivable tax claim, including contingent claims. While the Task Force does not support the proposal, the Task Force recognizes that perhaps governmental agencies need some additional information to enable them to identify these types of contingent claims. Accordingly, the Task Force proposes that the Official Forms be amended to require an individual debtor to state whether or not he is an officer, director or employee and identify the business entities for which he holds such positions.
The Association of the Bar of the City of New York agrees that state and local taxing authorities should be permitted to designate an address for serving notices. A focus group of the American College of Bankruptcy supports changes requiring a debtor to list the specific agency that is a creditor in a bankruptcy case.
Questions, comments or suggestions? kbercik@taxcounsellor.com
Last updated June 1, 1997