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Category: Bankruptcy Law
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Experience:  Bankruptcy professor.
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Chapter 7 Bankruptcy discharge approved. one of the creditors,

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Chapter 7 Bankruptcy discharge approved. one of the creditors, a payroll company we used in 2005 was suing us for unpaid payroll. They paid on our behalf due to accounting error. Filed suit in 2007 tried to settle when my current business started to fail in late 2008 we filed for Bankruptcy in early 2009 and included this payroll company in the discharge. It was approved and they didn't object. Now 7 months afterwards they have filed motion to Re-Open claiming "The sums sued for include debts for payroll withholding taxes paid to the Internal Revenue Service on behalf of the Defendants" debt owed is non-dischargeable debt under 11 U.S.C. §§ 507(a)(8)(C) and 523(a)(1). They attended a status conference in the State Court Suit in which the State Court requested get leave of Bankruptcy Court to proceed with original Suit.Do Bk courts usually reopen cases for this? I thought Payroll could be discharged if it was 180 day prior? If reopened wouldn't they only be entitled to tax portion?
Submitted: 6 years ago.
Category: Bankruptcy Law
Expert:  cfortunato replied 6 years ago.
Hi JACustomer,
Why do you think the payroll taxes are dischargable if withheld more than 180 days before filing the petition?
Customer: replied 6 years ago.
Wages earned before the filing get a lower priority, but are still paid before general unsecured claims. At least some of the wages (currently $10,950) you earned up to 180 days before the filing are given this priority. Wages in this context include “wages, salaries, or commissions, including vacation, severance, and sick leave pay.” But that assumes that there are assets available to pay your claim. In many cases, the employer may not have many assets left. If that's the case, you might get a few pennies for each dollar you are owed, or you might get nothing at all. The first thing to do is to file a proof of claim form, available from the clerk of the bankruptcy court as soon as possible. If you don't file a proof of claim on time, you might lose any right to collect for unpaid wages. (legal advice from another site)

But I just read

Texas Bankruptcy Exemptions

The Exemptions in Texas consist primarily of the following items:

6. Wages – 100% of earned but unpaid wages and 75% of unpaid commissions.

Confused...
Expert:  cfortunato replied 6 years ago.
The 180 days applies to wages only, not to the taxes that were withheld from that pay.
It looks like the payroll company is only trying to get the tax portion of the alleged debt, as this is all they would be able to get.
When the discharge of debt is in question after the bankruptcy case is discharged, the bankruptcy will allow the case to be re-opened for the purpose of determining this question.

Edited by Christina Fortunato, Esq. on 5/5/2010 at 3:37 PM EST
Customer: replied 6 years ago.
I'm not disputing the payroll "tax" portion. Just the wage amounts. They seem to be two seperate things. Tax debt can't be discharged but maybe the payroll amounts can? I'm thinking the Bankruptcy court would block them from re-opening because they had a chance to defend their claim against me within the 60 day notice period when notified.
Expert:  cfortunato replied 6 years ago.
The court would unlikely re-open the case for a dischargability determination based on the payroll only, but this company is not asking for the payroll only, they are specifically asking for the taxes. Here is what you wrote in the original question: "Now 7 months afterward they have filed motion to Re-Open claiming "The sums sued for include debts for payroll withholding taxes paid to the Internal Revenue Service on behalf of the Defendants" debt owed is non-dischargable debt..." (italics/bold added).
Customer: replied 6 years ago.
Last question .. BTWSmile Thank you sooo much for your help!!!

Are they only trying to get the tax portion or ? I couldn't post all of this in the orginal question.. Again thanks. Here is the entire motion to reopen.

Chapter 7 Case. In support thereof, XXXXXX would show the following:
1. Prior to November 2007, xxxx provided payroll services to the
Defendants. Defendants failed to pay xxxx for amounts XXXXXX paid to the Internal
Revenue Service on the Defendants’ behalf.
2. On November 20, 2007, xxxxx sued, among others, the Debtor for wages
earned by individuals from the Debtor’s business in the state court suit styled xxxxxx
, Inc. v. xxxxxxME, individually, and d/b/a mycompany
- 2 -
State District Court, County of XXXX
3. The sums sued for include debts for payroll withholding taxes paid by XXXXX
to the Internal Revenue Service on behalf of the Defendants. The debt owed to XXXXX is a non-dischargeable debt under 11 U.S.C. §§ 507(a)(8)(C) and 523(a)(1).
4. On May 28, 2009, Debtor ME.. filed his Chapter 7 bankruptcy. On
September 10, 2009, Debtor received his Chapter 7 discharge.
5. Post-discharge, XXXXX attended a status conference held in the State Court
Suit in which the State Court requested that XXXXX get leave of the Bankruptcy Court to
proceed with the State Court Suit.
6. XXXXXX files this Motion To Re-Open Case in order to obtain the requested
leave to proceed with the State Court Suit.
ACCORDINGLY,
Expert:  cfortunato replied 6 years ago.
You're welcome!
That motion to re-open the case is definitely regarding the taxes only.

Edited by Christina Fortunato, Esq. on 5/5/2010 at 4:05 PM EST
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