Or, Judge Holmes’ Revenge

What’d I do to deserve this? C’mon, Judge, can’t ya take a joke (or two or three or fifty)?

A Friday afternoon, before a three-day week-end, the official start of the summer, and Judge Holmes unloads an 18 (count ‘em, 18) page dissertation on Ch 13 of the Bankruptcy Act in the guise of an order, and an undesignated one at that.

I, poor blogger, am left to deal with this megillah, after I read through 110 orders of the “pay the sixty bucks” or “yer auf’d, no jurisdiction” variety. Then I hit this gem. And the only designated hitter today was STJ Daniel A (“Yuda”) Guy unloading on a frivolous UPS driver while his spouse gets innocent spousery.

Gimme a break!

OK, so here’s Chang D. Bullock, Docket No. 11182-09L, filed 7/1/16.

IRS is trying to grab some of Chang’s $8K per month wages, but Chang got a Ch 13 wage earner plan confirmed. Chang yells automatic stay, but IRS says there’s wages not allocated to the plan to pay back the pre-petition creditors, like them. There’s a four-way split between various courts, a three-way split in the Circuits, and the Supremes were only partly helpful last year.

Ch 13 is a breathing-room help to struggling debtors. They keep their assets but have to pay back creditors over a limited timeframe. And get back whatever’s left at close of play if they have performed under the plan, whereas a Ch 7 liquidation is a sell-all-thou-hast.

The question is what happens with assets (like wages) acquired while the Ch 13 plan is churning away.

Chang got dumped in a CDP over pre-petition taxes issued after Chang filed his Ch 13 petition. He claims his post-petition wages are his, not IRS’s, and IRS is prevented by the automatic stay from going after them.

There’s a hole between 11 USC 1306 and 11 USC 1327. There are four ways to unscramble this. One writes 1306 out of the Bankruptcy Code (termination), the other writes down 1327 to uselessness (preservation), another tries a Solomonic slice-the-baby that raises more questions than it answers (transformation), and finally (ta-da!) a mechanical approach called “reconciliation.”

The Supremes blew off both termination and preservation, but didn’t get to transformation or reconciliation. However, in order to bring some sort of conclusion to this case, notwithstanding the difficulties likely to arise in future cases, the flavor du jour is reconciliation.  The post-petition wages are part of the bankruptcy estate.

If discussing the number of Urim doing the mambo on the head of a proton floats your cliché, this is your kind of stuff. Or if you’re a law reviewnik who needs a winning headnote, stop in here.

But does Chang get summary J? He wants it, plus legals and admins. IRS wants it, but is clearly trailing down the stretch.

Here’s the finale.

“11 U.S.C. section 362’s automatic stay — the provision that fences in debtor’s property and handcuffs creditors — is what would render the Commissioner’s notice of determination null and void. It can trip up a creditor up in a number of ways. And while the Commissioner doesn’t have as many obstacles as other creditors — no matter the timing of the tax debt, 11 U.S.C. section 362(b)(9) permits him to issue a notice of deficiency, assess of tax [sic], and even demand payment — he too must navigate the automatic stay’s general prohibitions when issuing a notice of determination. Although most of these prohibitions apply to pre-petition debt, the bankruptcy petition also stays ‘any act to obtain possession of property of the estate * * *.” 11 U.S.C. § 362(a)(3). This is a two-part test; the first part easy, the second beguiling: The notice of determination is invalid if (1) it is ‘an act to obtain possession of property’ and (2) the property is ‘property of the estate.’

“We’ve previously held that under 11 U.S.C. section 362(a)(1), a notice of determination is a continuation of an administrative action against the debtor to recover a pre-petition claim. While it’s true that the tax at issue here is a post-petition claim and thus 11 U.S.C. section 362(a)(1) doesn’t apply, we are satisfied that a notice of determination is also an ‘act to obtain possession of property.’ The notice is no courtesy letter; it’s a step the Commissioner must take to get at Bullock’s wages. See I.R.C. § 6330(e) (‘In no event shall* * *[the Commissioner levy on property] before the 90th day after the day on which there is a final determination in* * * [a CDP hearing].’). Because we’ve concluded that Bullock’s post-confirmation wages are property of his chapter 13 bankruptcy estate, the Commissioner’s notice of determination is an act to obtain possession of estate property under 11 U.S.C. section 362(a)(3). It therefore violated the automatic stay. “ Order, at pp. 17-18. (Emphasis by the Court). (Citations omitted).

So summary J for Chang?

Nope. The NOD from the CDP is invalid as violative of the automatic stay, thus no jurisdiction.