Local Plan Form’s Treatment of Tax Returns Is Mandatory

Posted by NCBRC - October 15, 2018

Any conflict between Arizona’s Local Plan Form and the Bankruptcy Code’s requirement relating to a chapter 13 debtor’s obligation to file post-confirmation tax returns was not significant and the debtors here could not confirm a plan that failed to comply with the Local Form. In re Reichard, No. 16-12633 (Bankr. D. Ariz. July 5, 2018).

In their motion to set confirmation hearing, chapter 13 debtors, John and Ericka Rae Reichard, included a stipulated order of confirmation (SOC) under which they proposed to pay creditor, Harley Davidson, $6,255, consistent with Harley Davidson’s proof of claim but less than the amount the debtors had proposed in their plan. The SOC also included a provision for submitting post-confirmation tax returns to the court, in accordance with section 521(f), rather than directly to the trustee as required by Arizona Local Plan Form.

The court began with the dispute over the amount to be paid to Harley Davidson. It found that the Reichards were required to move to amend their proposed plan in accordance with section 1323 and Bankruptcy Rule 2002(a)(5), to give Harley Davidson the opportunity to accept or object to the change. The fact that the change appeared to be a correction in the amount designated for Harley Davidson did not alter this requirement.

The Reichards’ SOC also failed to conform to the Local Plan Form requiring a debtor to provide his post-confirmation tax returns to the trustee within 14 days of filing. The court noted that Congress has permitted local bankruptcy districts to create their own rules so long as they are: “1) [] consistent with Acts of Congress and the Federal Rules; (2) [] more than merely duplicative of Acts of Congress and the Federal Rules; and (3) [do] not prohibit or limit the use of Official Bankruptcy Forms.”

The Code provides for a chapter 13 trustee to have access to a debtor’s tax returns through a Rule 2004 application for examination, an adversary proceeding pursuant to Rule 7034, or a motion pursuant to section 521(a)(3). The court found that the Local Plan Form requiring debtors to submit the returns directly to the trustee was not inconsistent with these provisions. The intended purpose behind the requirement to file post-confirmation tax returns is to allow the trustee to monitor a debtor’s financial status and to move for modification if appropriate. The Local Plan Form simply stream-lined this process.

Where there was no evidence that the trustee sought the records for an improper purpose, the court rejected the Reichards’ argument that the requirement to provide the trustee with tax returns was an invasion of privacy. Rather, the court found that providing the returns directly to the trustee was an efficient method of advancing the trustee’s obligation to investigate a debtor’s ongoing financial status. Requiring a trustee to file a motion to obtain that information would be financially burdensome and administratively inefficient. Furthermore, because the Code requires a debtor to file tax returns with the court, the Reichards’ objection to submitting the returns directly to the trustee was a “distinction without a difference.”

The court declined to confirm the debtors’ plan.

Reichard Bankr Ariz July 2018


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