Debtors Need Not File Annual Updated Schedules

Posted by NCBRC - July 13, 2022

In a nice win for long-time NACBA member, Greggory Colpitts, the Bankruptcy Court for the Southern District of Oklahoma declined to place a prospective order requiring all chapter 13 debtors to submit annual tax returns and updated schedules I and J where the Code and local rules provide for annual filing of tax returns with the bankruptcy court, and section 521(f) requires debtors to file further financial information upon request by the trustee. In re Williams, No. 18-80539 (Bankr. S.D. Okla. July 5, 2022).

The case came before the court on the trustee’s motion seeking an order “Directing Compliance with 11 U.S.C. §521(f)” requiring the debtors in numerous chapter 13 cases to annually file tax returns as well as supplemental schedules I and J or an affidavit stating that the information would be the same as was listed on the original or most recent schedules. The trustee explained that the attorney for most of the debtors, longtime NACBA member Greggory Colpitts, is the only bankruptcy attorney in the district who refuses to have his clients voluntarily file the annual updated schedules. The trustee further explained that he sought the annual filings so he could easily determine whether a debtor’s income increased such that plan modification would be appropriate.

Mr. Colpitts countered that, like the trustee, he has hundreds of bankruptcy clients and the burden of preparing and submitting annual bankruptcy schedules for each one would be unduly burdensome and costly.

The parties agreed that section 521(f) of the Code requires debtors to turn over tax returns upon request by the court, the trustee, or other interested party. That section further provides that, upon request, the debtor submit “a statement, under penalty of perjury, of the income and expenditures of the debtor during the tax year of the debtor most recently concluded before such statement is filed under this paragraph, and of the monthly income of the debtor, that shows how income, expenditures, and monthly income are calculated.” Sections 521(f)(4)(B) and (g) also require a chapter 13 debtor to file updated schedules 45 days prior to the anniversary of plan confirmation.

In addition to the requirements of sections 521(f) and (g), Oklahoma local rule provides:

2.2 Income tax refunds.

Debtor(s) will timely file all required income tax returns and supply the Trustee with a complete copy (including all attachments) of each income tax return (both state and federal) filed during the Plan term within fourteen (14) days of filing the return and will turn over to the Trustee all net income tax refunds, minus earned income tax credits, received during the Plan term. Income tax refunds shall be paid to the Trustee in addition to the Plan payments stated above.

Mr. Colpitts argued that the information in the tax returns and the additional statement, if requested, is sufficient to keep the trustee apprised of the debtors’ income.  He further contended that the Code and rules place the burden on the trustee to seek additional information rather than on the debtors to routinely supply it.

The court noted that where other courts have granted requests like the trustee’s, they have done so because of unique circumstances, as in In re Nunez, 2014 WL 4473842 (Bankr. D. Colo. Sept. 14, 2014), where the judge ordered the debtor to file updated schedules upon request by the debtor to modify his plan. Acknowledging that the order would increase the debtor’s burden, the Nunez court found the fact that the debtor’s financial information involved bonuses “not readily ascertainable in a tax return,” was a circumstance warranting an order that the debtor provide an annual statement of income and expenses.

The court observed that, with respect to Mr. Colpitts’ clients, the trustee did not cite any special circumstances warranting annual schedule updates. While sections 521(f) and (g) do not require the trustee to show cause for a request for further financial information, the court noted that courts generally base an order requiring annual submissions on unique circumstances.

While commending the trustee on his diligence, the court went on to conclude that “there are procedures in place in this District which allow the Trustee to obtain needed financial information from debtors without the need for a new procedure or prospective orders. Therefore, the Court will not enter a prospective order requiring amended schedules in these cases or a standing order directing Mr. Colpitts’ clients or all debtors to do so in this District.”

With respect to the tax returns, the court found the local rules already require debtors to file them with the bankruptcy court within 14 days of filing with the tax authority. Any further order would therefore be redundant.

The court denied the trustee’s motion without prejudice.

Williams Bankr ED Okla July 2022



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