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Phillips Esq.
Phillips Esq., Attorney-at-Law
Category: Bankruptcy Law
Satisfied Customers: 13137
Experience:  B.A.; M.B.A.; J.D.
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Dear Attorney Philips, I dont think you were able to received

Customer Question

Dear Attorney Philips,

I dont think you were able to received my response, as today my new friends at justanswer also set another email advising questions were locked.

Let me know & I will send under this post.. maybe it won't be locked.

kindest regards,
your nightowl babbling creditor Susan( Just in case you have forgotten me)
Submitted: 4 years ago.
Category: Bankruptcy Law
Expert:  Phillips Esq. replied 4 years ago.
Thank you for giving me the opportunity to assist you. I encourage you to ask me for clarification, if you are not clear with my Answer.

I saw the e-mail but was not able to respond to it. I asked them to unlock it but they have not done so. Oh well!

Did you get the case that I sent you?

I have the Fortuntoff information for you. It took me seconds to get.

Expert:  Phillips Esq. replied 4 years ago.
Dear XXXXX:

I am going to be tied up a bit tonight. So, I am going to go ahead and repost my previous response here. I would post the Fortunoff information right after. Let me know if you have any questions.

Dear XXXXX:

I was doing some research on your case and found this case, which is relevant to your case.

You can use the 11 U.S.C. Section 523(a)(1) after all to defend the preference action. Custom duties paid to U.S. Customs on behalf of the debtor appears to be non-dischargeable:

http://bulk.resource.org/courts.gov/c/F2/926/926.F2d.501.90-2735.html

« up

926 F.2d 501

Bankr. L. Rep. P 73,867
In the Matter of Herbert W. FIELDS, Jr., Debtor.
HARTFORD CASUALTY INSURANCE COMPANY, Appellee,
v.
Herbert W. FIELDS, Jr., Appellant.

No. 90-2735
Summary Calendar.

United States Court of Appeals,
Fifth Circuit.

March 21, 1991.

Michael J. Pledger, Houston, Tex., for appellant.

Gary L. Wickert, Houston, Tex., for appellee.

Appeal from the United States District Court for the Southern District of Texas.

Before JOLLY, HIGGINBOTHAM, and JONES, Circuit Judges.

E. GRADY JOLLY, Circuit Judge:

1

The debtor, Herbert W. Fields ("Debtor"), appeals from the district court's refusal to discharge a certain debt to his surety, Hartford Casualty Insurance Co. ("Hartford"), incurred when Hartford paid taxes on his behalf to the State of Texas. The issue presented by this case is whether Hartford can be subrogated to the State of Texas' right to an exception from discharge under 11 U.S.C. Sec. 523(a)(1)(A)1 of the Bankruptcy Code. Holding that Hartford is entitled to subrogation, we affirm.

2

* The facts are brief and uncontested. Hartford issued a surety bond covering a mixed beverage permit to Debtor as the owner of two corporations known as Corky's Country and Carlos' 'N Charlies Del Norte, Inc.2 The surety agreement bound Debtor as principal and Hartford as surety to the rights of the State of Texas for payment of all fees, taxes and penalties levied by the Texas Alcoholic Beverages Commission ("TABC").

3

Debtor filed for bankruptcy protection in late December 1984. Subsequently, during the periods of December 28, 1984 to October 16, 1985, and February 19, 1985 to October 2, 1985, Debtor failed to pay taxes covered by the surety bonds. Pursuant to the surety bond requirements, Hartford paid $15,479.58 to the State on November 21, 1985.II

4

On December 28, 1984, Debtor filed his Chapter 11 bankruptcy petition and properly scheduled Hartford as a creditor. The case was converted to a Chapter 7 case on October 29, 1986. The Chapter 7 Creditor's Meeting was noticed and held on December 16, 1986, and the deadline for filing complaints to determine dischargeability under 11 U.S.C. 523(c) was established as February 16, 1987. Hartford failed to file a Complaint to Determine Dischargeability of Debt until February 9, 1988, nearly one year after the bar date. Debtor filed his Motion to Dismiss Complaint on March 9, 1988.

5

The Bankruptcy Court denied Debtor's motion, determining that Hartford's claim was nondischargeable under 11 U.S.C. Sec. 523(a)(1)(A). Debtor appealed to the district court on the grounds that the debt was not automatically nondischargeable as taxes and that under any other theory Hartford's Complaint was not timely filed. The district court, however, affirmed the Bankruptcy Court's decision. Debtor timely appeals.

III

6

Initially, we note that if there had been no surety arrangement in this case and the claim was asserted by the State of Texas rather than Hartford, the debt would be nondischargeable under 11 U.S.C. Sec. 523(a)(1)(A).3 We must decide, however, whether a surety who pays a tax debt of another is subrogated to the State's right to an exception from discharge. As with all such claims, the party seeking an exception to discharge bears the burden of proof as to nondischargeability. In re Benich, 811 F.2d 943 (5th Cir.1987).

7

Debtor argues that the debt due Hartford arose as a result of an indemnity agreement, rather than as a tax. The tax exception, according to Debtor, was promulgated to facilitate tax collection and because Hartford is not a taxing authority, this policy concern is not promoted by rendering Hartford's claim nondischargeable. Similarly, there is no need to protect the surety, argues the Debtor, as the fees charged by Hartford for the issuance of surety bonds are designed to protect Hartford against losses. Debtor concludes that because Hartford is not a taxing authority, it has no right to levy taxes and is not entitled to nondischargeability status under 11 U.S.C. Sec. 523(a)(1)(A). We are unpersuaded.

8

We last confronted this issue over thirty years ago in Gilbert v. United States Fidelity & Guaranty Co., 180 F.Supp. 794 (M.D.Ga.1959), aff'd per curiam, 274 F.2d 823 (5th Cir.1960). Gilbert is similar to the case at bar. Pursuant to a surety agreement, USF & G paid taxes due the State of Georgia that Gilbert had failed to pay. After Gilbert was adjudicated bankrupt, he sought a determination that the debt owed the surety was discharged in his bankruptcy. The district court, however, held that the surety benefitted from a Georgia subrogation statute, and the taxes were treated as still due for the benefit of the surety. Gilbert, 180 F.Supp. at 796. We affirmed the holding that under the Bankruptcy Act, a surety who pays a debtor's tax liability is subrogated to the taxing authority's status to prevent the discharge of a claim for unpaid taxes. 274 F.2d at 823.

9

Gilbert was decided, however, under the old Bankruptcy Act. Debtor argues that the adoption of the new Bankruptcy Code permits us to reexamine this issue and, if warranted, to disregard Gilbert. We acknowledge that if the Bankruptcy Code created a substantive departure from the Bankruptcy Act on the issue of a surety subrogation to tax debts, we would be released, at least to a degree, from the precedential restraint of Gilbert. We believe that the adoption of the Bankruptcy Code, however, did not alter in any significant way, the bankruptcy law with respect to this issue.4 We are therefore bound by our previous decision in Gilbert. See Ford v. United States, 618 F.2d 357, 361 (5th Cir.1980). As stated in Gilbert, "it is as if the taxes themselves have not been paid and are still due and, of course, are not dischargeable in bankruptcy." 180 F.Supp. at 796. Accordingly, we hold that Hartford, having paid Debtor's taxes to the TABC, is subrogated to all the rights that the State of Texas had against Debtor under the Bankruptcy Code.5

10

The Eleventh Circuit has also concluded that our holding in Gilbert survives the adoption of the Bankruptcy Code. In In re Waite, 698 F.2d 1177 (11th Cir.1983), the surety made an identical claim as Hartford. The surety argued that it was entitled to be subrogated to the rights and standing of the State of Tennessee to assert nondischargeability under 11 U.S.C. Sec. 523(a)(1)(A) for unpaid liquor sales taxes of the kinds specified by 11 U.S.C. Sec. 507(a)(6).6 The Eleventh Circuit agreed, holding specifically that Gilbert survived the enactment of the Bankruptcy Code.7 The Waite court reasoned that:

11

While Gilbert concerned the old Bankruptcy Act, the new Bankruptcy Code does not furnish a principled basis for distinguishing this case. Neither statute expressly indicates whether the nondischargeability of tax debts extends to debts owed to a surety which has paid the Debtor's tax debts.

12

698 F.2d at 1178. We note that the majority of courts that have addressed this issue have likewise held that a surety is entitled to subrogation under Sec. 523(a)(1)(A).8IV

13

Because Hartford has met its burden of proving that it is entitled to be subrogated to the nondischargeability rights of the State of Texas, the decision of the district court is

14

AFFIRMED.

1

Section 523(a)(1)(A) of the Bankruptcy Code provides:

(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does to discharge an individual Debtor from any debt--

(1) for a tax or a customs duty--

(A) of the kind and of the periods specified in section 507(a)(2) or 507(a)(7) of this title, whether or not a claim for such tax was filed or allowed;

2

Texas Alcoholic Beverage Code Sec. 204.01 (Vernon 1978 & 1991 Supp.) requires licensees and permittees of mixed beverages to furnish a bond to secure the payment of the gross receipts tax

3

It is uncontested that the taxes in question in this case are nondischargeable pursuant to Sec. 507(a)(7). Section 507(a)(7), concerning priority of claims, lists a number of taxes including a "tax required to be collected or withheld and for which the debtor is liable in whatever capacity." The legislative history reveals that this category of taxes "includes excise taxes which a seller of goods is required to collect from a buyer and pay over to a taxing authority." S.Rep. No. 989, 95th Cong., 2d Sess. 71, reprinted in 1978 U.S.Code Cong. & Ad.News 5787, 5857

4

Specifically, the Bankruptcy Act provided that a "discharge in bankruptcy shall release a bankrupt from ... all of his provable debts ... except such as (1) are due as a tax ..." 11 U.S.C. Sec. 35 (1964) (repealed). Section 523(a)(1) of the Bankruptcy Code states that a "discharge ... does not discharge an individual debtor from any debt for a tax...."

5

Gilbert relied on a Georgia law that permitted subrogation. Similarly, we note that the principle of subrogation is well recognized in Texas. Texas law provides that a surety "is subrogated to all of the judgment creditor's rights." Tex.Bus. & Comm.Code Ann. Sec. 34.04 (Vernon 1990). The Texas Supreme Court has also held that a surety is subrogated to all of the rights of the original creditor:

Because the surety promises to pay the debt of another, equity confers the right of subrogation. If the surety or party in the position of a surety pays the debt of the principal, the surety is subrogated to all of the rights, remedies, equities, and securities of the creditor.

Crimmins v. Lowry, 691 S.W.2d 582, 585 (Tex.1985).

6

Now 507(a)(7), renumbered 1984

7

Because decisions of the Fifth Circuit that were decided on or before September 20, 1981, are binding on the Eleventh Circuit, the Waite court necessarily had to address the same issue with respect to the precedential effects of Gilbert. See, e.g., Bonner v. Prichard, 661 F.2d 1206, 1209 (11th Cir.1981)

8

See, e.g., In re Norris, 107 B.R. 592 (E.D.Tenn.1989); In re Trasks' Charolais, 84 B.R. 646 (D.S.D.1988); In re Cooper, 83 B.R. 544 (C.D.Ill.1988); In re Zoglman, 78 B.R. 213 (W.D.Wis.1987); In re Caffrey, 77 B.R. 219 (W.D.Mo.1987); In re Morris, 31 B.R. 474 (N.D.Ill.1983); In re Alloway, 37 B.R. 420 (E.D.Pa.1984); In re Hancock, 36 B.R. 709 (S.D.Ill.1984); In re Woerner, 19 B.R. 708 (D.Kan.1982); In re Gibbs, 11 B.R. 320 (W.D.Mo.1981)

The Ninth Circuit is the one notable exception to this majority. See, e.g., National Collection Agency, Inc. v. Trahan, 624 F.2d 906 (9th Cir.1980). The Trahan court expressly refused to follow our decision in Gilbert. 624 F.2d at 907-08. The court emphasized a general policy of the Bankruptcy Code was to grant debtors a fresh start. Nevertheless, it recognized an exception to this policy for taxes because of the "overriding need to assure tax collection by government entities." Id. at 907. The court reasoned that permitting a surety to assert the rights of the State would not promote the collection of taxes, and would actually run contrary to the policy of providing debtors a fresh start. Id. As a result, the Trahan court held that California surety law conflicted with federal bankruptcy law. Id.

We disagree. Because Texas required the bond specifically to secure payment of the taxes, we think the debt paid by the surety is a tax "of the kind" specified in Sec. 506(a)(7). Furthermore, we do not see how the Gilbert holding interferes with the fresh start contemplated for debtors by the Code:

[a] debtor's fresh start is not overburdened by excepting a surety's subrogation claim from discharge. The debtor's fresh start is the same; he owes the same amount of nondischargeable tax debt; the only difference is whether the debtor owes the debt to the government or the surety.

In re Norris, 107 B.R. 592, 596 (E.D.Tenn.1989).

Customer: replied 4 years ago.

I thought you might be locked out when I the positive feedback email that was just sent.

 

I read your email but haven't read the whole case yet. I started to but quiet does not come to this house until about 9:30. My kids are so cute & quiet when sleeping. I will read tonight.

 

Believe it not I am still finishing up the last of 2006! I was seeing red today, my bookkeeping dept can't locate about 6 checks, whole month not in our cash receipts records for 2007,

 

Do you think that would be problem with Trustee? I spent 2 hours looking in our records to no avail. All other years ok thou.

 

Please let me know if I am getting this right, the court decided to recognize the subrogation Of State Tax Dept rights to the surety Company.

 

Is it only because the surety had obligation to pay it when debtor didn't.? Duty taxes are not our obligation as Brokers, when filed in importer name, who is required to maintain a surety bond.

 

What does the bankruptcy court have against US Customs brokers?

 

Customs really tried to assign rights with. HR 313 - what is that anyway, some kind of federal court agreed with US Customs. However the bankruptcy court said NO.

 

Now let me ask you another question, why would my retained attorney ask me to give him the history rather than look himself? Also he mentioned that the USC change 5 years ago, ? Changed how? Anyway,I didn't speak too long at these rates.

 

 

Don't see how the change of corp structure is going to make a difference anyway.

 

From what I understand Fortunoff had several holding Companies..Lord & Taylor was going to buy them.. to bad that didn't happen for them.

 

What a beautiful store it was, sad really.

 

I will read the case now, as I a plugging more numbers into this spreadsheet.

Kind regards,

Susan

 

Expert:  Phillips Esq. replied 4 years ago.
Dear Susan:

I am going to be tied up a bit tonight. So, I am going to go ahead and repost my previous response here. I would post the Fortunoff information right after. Let me know if you have any questions.

Dear Susan:

I was doing some research on your case and found this case, which is relevant to your case.

You can use the 11 U.S.C. Section 523(a)(1) after all to defend the preference action. Custom duties paid to U.S. Customs on behalf of the debtor appears to be non-dischargeable:

http://bulk.resource.org/courts.gov/c/F2/926/926.F2d.501.90-2735.html

« up

926 F.2d 501

Bankr. L. Rep. P 73,867
In the Matter of Herbert W. FIELDS, Jr., Debtor.
HARTFORD CASUALTY INSURANCE COMPANY, Appellee,
v.
Herbert W. FIELDS, Jr., Appellant.

No. 90-2735
Summary Calendar.

United States Court of Appeals,
Fifth Circuit.

March 21, 1991.

Michael J. Pledger, Houston, Tex., for appellant.

Gary L. Wickert, Houston, Tex., for appellee.

Appeal from the United States District Court for the Southern District of Texas.

Before JOLLY, HIGGINBOTHAM, and JONES, Circuit Judges.

E. GRADY JOLLY, Circuit Judge:

1

The debtor, Herbert W. Fields ("Debtor"), appeals from the district court's refusal to discharge a certain debt to his surety, Hartford Casualty Insurance Co. ("Hartford"), incurred when Hartford paid taxes on his behalf to the State of Texas. The issue presented by this case is whether Hartford can be subrogated to the State of Texas' right to an exception from discharge under 11 U.S.C. Sec. 523(a)(1)(A)1 of the Bankruptcy Code. Holding that Hartford is entitled to subrogation, we affirm.

2

* The facts are brief and uncontested. Hartford issued a surety bond covering a mixed beverage permit to Debtor as the owner of two corporations known as Corky's Country and Carlos' 'N Charlies Del Norte, Inc.2 The surety agreement bound Debtor as principal and Hartford as surety to the rights of the State of Texas for payment of all fees, taxes and penalties levied by the Texas Alcoholic Beverages Commission ("TABC").

3

Debtor filed for bankruptcy protection in late December 1984. Subsequently, during the periods of December 28, 1984 to October 16, 1985, and February 19, 1985 to October 2, 1985, Debtor failed to pay taxes covered by the surety bonds. Pursuant to the surety bond requirements, Hartford paid $15,479.58 to the State on November 21, 1985.II

4

On December 28, 1984, Debtor filed his Chapter 11 bankruptcy petition and properly scheduled Hartford as a creditor. The case was converted to a Chapter 7 case on October 29, 1986. The Chapter 7 Creditor's Meeting was noticed and held on December 16, 1986, and the deadline for filing complaints to determine dischargeability under 11 U.S.C. 523(c) was established as February 16, 1987. Hartford failed to file a Complaint to Determine Dischargeability of Debt until February 9, 1988, nearly one year after the bar date. Debtor filed his Motion to Dismiss Complaint on March 9, 1988.

5

The Bankruptcy Court denied Debtor's motion, determining that Hartford's claim was nondischargeable under 11 U.S.C. Sec. 523(a)(1)(A). Debtor appealed to the district court on the grounds that the debt was not automatically nondischargeable as taxes and that under any other theory Hartford's Complaint was not timely filed. The district court, however, affirmed the Bankruptcy Court's decision. Debtor timely appeals.

III

6

Initially, we note that if there had been no surety arrangement in this case and the claim was asserted by the State of Texas rather than Hartford, the debt would be nondischargeable under 11 U.S.C. Sec. 523(a)(1)(A).3 We must decide, however, whether a surety who pays a tax debt of another is subrogated to the State's right to an exception from discharge. As with all such claims, the party seeking an exception to discharge bears the burden of proof as to nondischargeability. In re Benich, 811 F.2d 943 (5th Cir.1987).

7

Debtor argues that the debt due Hartford arose as a result of an indemnity agreement, rather than as a tax. The tax exception, according to Debtor, was promulgated to facilitate tax collection and because Hartford is not a taxing authority, this policy concern is not promoted by rendering Hartford's claim nondischargeable. Similarly, there is no need to protect the surety, argues the Debtor, as the fees charged by Hartford for the issuance of surety bonds are designed to protect Hartford against losses. Debtor concludes that because Hartford is not a taxing authority, it has no right to levy taxes and is not entitled to nondischargeability status under 11 U.S.C. Sec. 523(a)(1)(A). We are unpersuaded.

8

We last confronted this issue over thirty years ago in Gilbert v. United States Fidelity & Guaranty Co., 180 F.Supp. 794 (M.D.Ga.1959), aff'd per curiam, 274 F.2d 823 (5th Cir.1960). Gilbert is similar to the case at bar. Pursuant to a surety agreement, USF & G paid taxes due the State of Georgia that Gilbert had failed to pay. After Gilbert was adjudicated bankrupt, he sought a determination that the debt owed the surety was discharged in his bankruptcy. The district court, however, held that the surety benefitted from a Georgia subrogation statute, and the taxes were treated as still due for the benefit of the surety. Gilbert, 180 F.Supp. at 796. We affirmed the holding that under the Bankruptcy Act, a surety who pays a debtor's tax liability is subrogated to the taxing authority's status to prevent the discharge of a claim for unpaid taxes. 274 F.2d at 823.

9

Gilbert was decided, however, under the old Bankruptcy Act. Debtor argues that the adoption of the new Bankruptcy Code permits us to reexamine this issue and, if warranted, to disregard Gilbert. We acknowledge that if the Bankruptcy Code created a substantive departure from the Bankruptcy Act on the issue of a surety subrogation to tax debts, we would be released, at least to a degree, from the precedential restraint of Gilbert. We believe that the adoption of the Bankruptcy Code, however, did not alter in any significant way, the bankruptcy law with respect to this issue.4 We are therefore bound by our previous decision in Gilbert. See Ford v. United States, 618 F.2d 357, 361 (5th Cir.1980). As stated in Gilbert, "it is as if the taxes themselves have not been paid and are still due and, of course, are not dischargeable in bankruptcy." 180 F.Supp. at 796. Accordingly, we hold that Hartford, having paid Debtor's taxes to the TABC, is subrogated to all the rights that the State of Texas had against Debtor under the Bankruptcy Code.5

10

The Eleventh Circuit has also concluded that our holding in Gilbert survives the adoption of the Bankruptcy Code. In In re Waite, 698 F.2d 1177 (11th Cir.1983), the surety made an identical claim as Hartford. The surety argued that it was entitled to be subrogated to the rights and standing of the State of Tennessee to assert nondischargeability under 11 U.S.C. Sec. 523(a)(1)(A) for unpaid liquor sales taxes of the kinds specified by 11 U.S.C. Sec. 507(a)(6).6 The Eleventh Circuit agreed, holding specifically that Gilbert survived the enactment of the Bankruptcy Code.7 The Waite court reasoned that:

11

While Gilbert concerned the old Bankruptcy Act, the new Bankruptcy Code does not furnish a principled basis for distinguishing this case. Neither statute expressly indicates whether the nondischargeability of tax debts extends to debts owed to a surety which has paid the Debtor's tax debts.

12

698 F.2d at 1178. We note that the majority of courts that have addressed this issue have likewise held that a surety is entitled to subrogation under Sec. 523(a)(1)(A).8IV

13

Because Hartford has met its burden of proving that it is entitled to be subrogated to the nondischargeability rights of the State of Texas, the decision of the district court is

14

AFFIRMED.

1

Section 523(a)(1)(A) of the Bankruptcy Code provides:

(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does to discharge an individual Debtor from any debt--

(1) for a tax or a customs duty--

(A) of the kind and of the periods specified in section 507(a)(2) or 507(a)(7) of this title, whether or not a claim for such tax was filed or allowed;

2

Texas Alcoholic Beverage Code Sec. 204.01 (Vernon 1978 & 1991 Supp.) requires licensees and permittees of mixed beverages to furnish a bond to secure the payment of the gross receipts tax

3

It is uncontested that the taxes in question in this case are nondischargeable pursuant to Sec. 507(a)(7). Section 507(a)(7), concerning priority of claims, lists a number of taxes including a "tax required to be collected or withheld and for which the debtor is liable in whatever capacity." The legislative history reveals that this category of taxes "includes excise taxes which a seller of goods is required to collect from a buyer and pay over to a taxing authority." S.Rep. No. 989, 95th Cong., 2d Sess. 71, reprinted in 1978 U.S.Code Cong. & Ad.News 5787, 5857

4

Specifically, the Bankruptcy Act provided that a "discharge in bankruptcy shall release a bankrupt from ... all of his provable debts ... except such as (1) are due as a tax ..." 11 U.S.C. Sec. 35 (1964) (repealed). Section 523(a)(1) of the Bankruptcy Code states that a "discharge ... does not discharge an individual debtor from any debt for a tax...."

5

Gilbert relied on a Georgia law that permitted subrogation. Similarly, we note that the principle of subrogation is well recognized in Texas. Texas law provides that a surety "is subrogated to all of the judgment creditor's rights." Tex.Bus. & Comm.Code Ann. Sec. 34.04 (Vernon 1990). The Texas Supreme Court has also held that a surety is subrogated to all of the rights of the original creditor:

Because the surety promises to pay the debt of another, equity confers the right of subrogation. If the surety or party in the position of a surety pays the debt of the principal, the surety is subrogated to all of the rights, remedies, equities, and securities of the creditor.

Crimmins v. Lowry, 691 S.W.2d 582, 585 (Tex.1985).

6

Now 507(a)(7), renumbered 1984

7

Because decisions of the Fifth Circuit that were decided on or before September 20, 1981, are binding on the Eleventh Circuit, the Waite court necessarily had to address the same issue with respect to the precedential effects of Gilbert. See, e.g., Bonner v. Prichard, 661 F.2d 1206, 1209 (11th Cir.1981)

8

See, e.g., In re Norris, 107 B.R. 592 (E.D.Tenn.1989); In re Trasks' Charolais, 84 B.R. 646 (D.S.D.1988); In re Cooper, 83 B.R. 544 (C.D.Ill.1988); In re Zoglman, 78 B.R. 213 (W.D.Wis.1987); In re Caffrey, 77 B.R. 219 (W.D.Mo.1987); In re Morris, 31 B.R. 474 (N.D.Ill.1983); In re Alloway, 37 B.R. 420 (E.D.Pa.1984); In re Hancock, 36 B.R. 709 (S.D.Ill.1984); In re Woerner, 19 B.R. 708 (D.Kan.1982); In re Gibbs, 11 B.R. 320 (W.D.Mo.1981)

The Ninth Circuit is the one notable exception to this majority. See, e.g., National Collection Agency, Inc. v. Trahan, 624 F.2d 906 (9th Cir.1980). The Trahan court expressly refused to follow our decision in Gilbert. 624 F.2d at 907-08. The court emphasized a general policy of the Bankruptcy Code was to grant debtors a fresh start. Nevertheless, it recognized an exception to this policy for taxes because of the "overriding need to assure tax collection by government entities." Id. at 907. The court reasoned that permitting a surety to assert the rights of the State would not promote the collection of taxes, and would actually run contrary to the policy of providing debtors a fresh start. Id. As a result, the Trahan court held that California surety law conflicted with federal bankruptcy law. Id.

We disagree. Because Texas required the bond specifically to secure payment of the taxes, we think the debt paid by the surety is a tax "of the kind" specified in Sec. 506(a)(7). Furthermore, we do not see how the Gilbert holding interferes with the fresh start contemplated for debtors by the Code:

[a] debtor's fresh start is not overburdened by excepting a surety's subrogation claim from discharge. The debtor's fresh start is the same; he owes the same amount of nondischargeable tax debt; the only difference is whether the debtor owes the debt to the government or the surety.

In re Norris, 107 B.R. 592, 596 (E.D.Tenn.1989).

Customer: replied 4 years ago.

Dear Attorney Phillips,

 

Thanks, didn't want to bother you. I have read your email today & print whole case, will get through it tonight. No need to respond tonight , oh my surely to asked late night questions. I am sure you are busy, so answer when you are able.

 

Thanks again for help with corp structure changes, I know there were many holding companies, a shame if the fortunoff family just followed their father's business logic, this would have never have happened. Their stores were always packed & people loved them. Sales were there, so someone must have very deep pockets, certainly not the Company thou.

 

 

Sorry I babble, helps with my ideas..

 

Good night & rest well.

Susan

Expert:  Phillips Esq. replied 4 years ago.

Believe it not I am still finishing up the last of 2006! I was seeing red today, my bookkeeping dept can't locate about 6 checks, whole month not in our cash receipts records for 2007,

Do you think that would be problem with Trustee? I spent 2 hours looking in our records to no avail. All other years ok thou.

 

Response 1: I do not think so. You are only required provide to the Trustee the documents in your possession. If you do not have them, the Trustee cannot make you produce them.


Please let me know if I am getting this right, the court decided to recognize the subrogation Of State Tax Dept rights to the surety Company.

 

Response 2: Yes that is correct.

 

Is it only because the surety had obligation to pay it when debtor didn't.? Duty taxes are not our obligation as Brokers, when filed in importer name, who is required to maintain a surety bond.

 

Response 3: Yes, it appears that way from my reading of the case. However, nothing prevents you from arguing the same thing. This is how new case laws are made.

 

What does the bankruptcy court have against US Customs brokers?

 

Response 4: Your guess is good as mine.


Now let me ask you another question, why would my retained attorney ask me to give him the history rather than look himself?


Response 5: I was wondering the same thing. The information is readily available. They could have gotten it in seconds. Well, maybe they would not charge you zillions of dollars for the information. I have it and will forward it now.


Also he mentioned that the USC change 5 years ago, ? Changed how? Anyway,I didn't speak too long at these rates.

 

Response 6: I do not know what he is talking about. Codes are amended all the time. The Code sections that we are reviewing are current. Bankruptcy Code was amended on October 25, 2005.


Here is the Fortunott information now:

 

Information on Fortunoff various companies can be easily located the NY Department of State, Corporations Division. Scroll all the way down to search for entities and then type Fortunoff. I have already done this for this for you. Entities total 9. Click on the link to get date of creation:

Entities total 9. Click on the link to get date of creation

http://www.dos.state.ny.us/corps/

I have already done this for this for you.

A total of 9 entities were found.

http://appsext8.dos.state.ny.us/corp_public/CORPSEARCH.ENTITY_INFORMATION?p_nameid=3836720&p_corpid=3842732&p_entity_name=%66%6F%72%74%75%6E%6F%66%66&p_name_type=%41&p_search_type=%42%45%47%49%4E%53&p_srch_results_page=0

http://appsext8.dos.state.ny.us/corp_public/CORPSEARCH.ENTITY_INFORMATION?p_nameid=3645738&p_corpid=3646714&p_entity_name=%66%6F%72%74%75%6E%6F%66%66&p_name_type=%41&p_search_type=%42%45%47%49%4E%53&p_srch_results_page=0

http://appsext8.dos.state.ny.us/corp_public/CORPSEARCH.ENTITY_INFORMATION?p_nameid=3145596&p_corpid=3134916&p_entity_name=%66%6F%72%74%75%6E%6F%66%66&p_name_type=%41&p_search_type=%42%45%47%49%4E%53&p_srch_results_page=0

http://appsext8.dos.state.ny.us/corp_public/CORPSEARCH.ENTITY_INFORMATION?p_nameid=324643&p_corpid=275380&p_entity_name=%66%6F%72%74%75%6E%6F%66%66&p_name_type=%41&p_search_type=%42%45%47%49%4E%53&p_srch_results_page=0

http://appsext8.dos.state.ny.us/corp_public/CORPSEARCH.ENTITY_INFORMATION?p_nameid=2920022&p_corpid=2905202&p_entity_name=%66%6F%72%74%75%6E%6F%66%66&p_name_type=%41&p_search_type=%42%45%47%49%4E%53&p_srch_results_page=0

http://appsext8.dos.state.ny.us/corp_public/CORPSEARCH.ENTITY_INFORMATION?p_nameid=158239&p_corpid=130919&p_entity_name=%66%6F%72%74%75%6E%6F%66%66&p_name_type=%41&p_search_type=%42%45%47%49%4E%53&p_srch_results_page=0

http://appsext8.dos.state.ny.us/corp_public/CORPSEARCH.ENTITY_INFORMATION?p_nameid=497734&p_corpid=429628&p_entity_name=%66%6F%72%74%75%6E%6F%66%66&p_name_type=%41&p_search_type=%42%45%47%49%4E%53&p_srch_results_page=0

http://appsext8.dos.state.ny.us/corp_public/CORPSEARCH.ENTITY_INFORMATION?p_nameid=157408&p_corpid=130214&p_entity_name=%66%6F%72%74%75%6E%6F%66%66&p_name_type=%41&p_search_type=%42%45%47%49%4E%53&p_srch_results_page=0

http://appsext8.dos.state.ny.us/corp_public/CORPSEARCH.ENTITY_INFORMATION?p_nameid=2485832&p_corpid=2450826&p_entity_name=%66%6F%72%74%75%6E%6F%66%66&p_name_type=%41&p_search_type=%42%45%47%49%4E%53&p_srch_results_page=0

 

Expert:  Phillips Esq. replied 4 years ago.

Believe it not I am still finishing up the last of 2006! I was seeing red today, my bookkeeping dept can't locate about 6 checks, whole month not in our cash receipts records for 2007,

Do you think that would be problem with Trustee? I spent 2 hours looking in our records to no avail. All other years ok thou.

 

Response 1: I do not think so. You are only required provide to the Trustee the documents in your possession. If you do not have them, the Trustee cannot make you produce them.


Please let me know if I am getting this right, the court decided to recognize the subrogation Of State Tax Dept rights to the surety Company.

 

Response 2: Yes that is correct.

 

Is it only because the surety had obligation to pay it when debtor didn't.? Duty taxes are not our obligation as Brokers, when filed in importer name, who is required to maintain a surety bond.

 

Response 3: Yes, it appears that way from my reading of the case. However, nothing prevents you from arguing the same thing. This is how new case laws are made.

 

What does the bankruptcy court have against US Customs brokers?

 

Response 4: Your guess is good as mine.


Now let me ask you another question, why would my retained attorney ask me to give him the history rather than look himself?


Response 5: I was wondering the same thing. The information is readily available. They could have gotten it in seconds. Well, maybe they would not charge you zillions of dollars for the information. I have it and will forward it now.


Also he mentioned that the USC change 5 years ago, ? Changed how? Anyway,I didn't speak too long at these rates.

 

Response 6: I do not know what he is talking about. Codes are amended all the time. The Code sections that we are reviewing are current. Bankruptcy Code was amended on October 25, 2005.


Here is the Fortunott information now:

 

Information on Fortunoff various companies can be easily located the NY Department of State, Corporations Division. Scroll all the way down to search for entities and then type Fortunoff. I have already done this for this for you. Entities total 9. Click on the link to get date of creation:

Entities total 9. Click on the link to get date of creation

http://www.dos.state.ny.us/corps/

I have already done this for this for you.

A total of 9 entities were found.

http://appsext8.dos.state.ny.us/corp_public/CORPSEARCH.ENTITY_INFORMATION?p_nameid=3836720&p_corpid=3842732&p_entity_name=%66%6F%72%74%75%6E%6F%66%66&p_name_type=%41&p_search_type=%42%45%47%49%4E%53&p_srch_results_page=0

http://appsext8.dos.state.ny.us/corp_public/CORPSEARCH.ENTITY_INFORMATION?p_nameid=3645738&p_corpid=3646714&p_entity_name=%66%6F%72%74%75%6E%6F%66%66&p_name_type=%41&p_search_type=%42%45%47%49%4E%53&p_srch_results_page=0

http://appsext8.dos.state.ny.us/corp_public/CORPSEARCH.ENTITY_INFORMATION?p_nameid=3145596&p_corpid=3134916&p_entity_name=%66%6F%72%74%75%6E%6F%66%66&p_name_type=%41&p_search_type=%42%45%47%49%4E%53&p_srch_results_page=0

http://appsext8.dos.state.ny.us/corp_public/CORPSEARCH.ENTITY_INFORMATION?p_nameid=324643&p_corpid=275380&p_entity_name=%66%6F%72%74%75%6E%6F%66%66&p_name_type=%41&p_search_type=%42%45%47%49%4E%53&p_srch_results_page=0

http://appsext8.dos.state.ny.us/corp_public/CORPSEARCH.ENTITY_INFORMATION?p_nameid=2920022&p_corpid=2905202&p_entity_name=%66%6F%72%74%75%6E%6F%66%66&p_name_type=%41&p_search_type=%42%45%47%49%4E%53&p_srch_results_page=0

http://appsext8.dos.state.ny.us/corp_public/CORPSEARCH.ENTITY_INFORMATION?p_nameid=158239&p_corpid=130919&p_entity_name=%66%6F%72%74%75%6E%6F%66%66&p_name_type=%41&p_search_type=%42%45%47%49%4E%53&p_srch_results_page=0

http://appsext8.dos.state.ny.us/corp_public/CORPSEARCH.ENTITY_INFORMATION?p_nameid=497734&p_corpid=429628&p_entity_name=%66%6F%72%74%75%6E%6F%66%66&p_name_type=%41&p_search_type=%42%45%47%49%4E%53&p_srch_results_page=0

http://appsext8.dos.state.ny.us/corp_public/CORPSEARCH.ENTITY_INFORMATION?p_nameid=157408&p_corpid=130214&p_entity_name=%66%6F%72%74%75%6E%6F%66%66&p_name_type=%41&p_search_type=%42%45%47%49%4E%53&p_srch_results_page=0

http://appsext8.dos.state.ny.us/corp_public/CORPSEARCH.ENTITY_INFORMATION?p_nameid=2485832&p_corpid=2450826&p_entity_name=%66%6F%72%74%75%6E%6F%66%66&p_name_type=%41&p_search_type=%42%45%47%49%4E%53&p_srch_results_page=0

 

Expert:  Phillips Esq. replied 4 years ago.

Believe it not I am still finishing up the last of 2006! I was seeing red today, my bookkeeping dept can't locate about 6 checks, whole month not in our cash receipts records for 2007,

Do you think that would be problem with Trustee? I spent 2 hours looking in our records to no avail. All other years ok thou.

 

Response 1: I do not think so. You are only required provide to the Trustee the documents in your possession. If you do not have them, the Trustee cannot make you produce them.


Please let me know if I am getting this right, the court decided to recognize the subrogation Of State Tax Dept rights to the surety Company.

 

Response 2: Yes that is correct.

 

Is it only because the surety had obligation to pay it when debtor didn't.? Duty taxes are not our obligation as Brokers, when filed in importer name, who is required to maintain a surety bond.

 

Response 3: Yes, it appears that way from my reading of the case. However, nothing prevents you from arguing the same thing. This is how new case laws are made.

 

What does the bankruptcy court have against US Customs brokers?

 

Response 4: Your guess is good as mine.


Now let me ask you another question, why would my retained attorney ask me to give him the history rather than look himself?


Response 5: I was wondering the same thing. The information is readily available. They could have gotten it in seconds. Well, maybe they would not charge you zillions of dollars for the information. I have it and will forward it now.


Also he mentioned that the USC change 5 years ago, ? Changed how? Anyway,I didn't speak too long at these rates.

 

Response 6: I do not know what he is talking about. Codes are amended all the time. The Code sections that we are reviewing are current. Bankruptcy Code was amended on October 25, 2005.

 

And you do not babble. No need to apologiz.


Here is the Fortunoff information now:

 

Information on Fortunoff's various companies can be easily located at the NY Department of State, Corporations Division. Scroll all the way down to search for entities and then type Fortunoff. I have already done this for you. Entities total 9. Click on the link to get date of creation:

Entities total 9. Click on the link to get date of creation

http://www.dos.state.ny.us/corps/

I have already done this for this for you.

A total of 9 entities were found.

http://appsext8.dos.state.ny.us/corp_public/CORPSEARCH.ENTITY_INFORMATION?p_nameid=3836720&p_corpid=3842732&p_entity_name=%66%6F%72%74%75%6E%6F%66%66&p_name_type=%41&p_search_type=%42%45%47%49%4E%53&p_srch_results_page=0

http://appsext8.dos.state.ny.us/corp_public/CORPSEARCH.ENTITY_INFORMATION?p_nameid=3645738&p_corpid=3646714&p_entity_name=%66%6F%72%74%75%6E%6F%66%66&p_name_type=%41&p_search_type=%42%45%47%49%4E%53&p_srch_results_page=0

http://appsext8.dos.state.ny.us/corp_public/CORPSEARCH.ENTITY_INFORMATION?p_nameid=3145596&p_corpid=3134916&p_entity_name=%66%6F%72%74%75%6E%6F%66%66&p_name_type=%41&p_search_type=%42%45%47%49%4E%53&p_srch_results_page=0

http://appsext8.dos.state.ny.us/corp_public/CORPSEARCH.ENTITY_INFORMATION?p_nameid=324643&p_corpid=275380&p_entity_name=%66%6F%72%74%75%6E%6F%66%66&p_name_type=%41&p_search_type=%42%45%47%49%4E%53&p_srch_results_page=0

http://appsext8.dos.state.ny.us/corp_public/CORPSEARCH.ENTITY_INFORMATION?p_nameid=2920022&p_corpid=2905202&p_entity_name=%66%6F%72%74%75%6E%6F%66%66&p_name_type=%41&p_search_type=%42%45%47%49%4E%53&p_srch_results_page=0

http://appsext8.dos.state.ny.us/corp_public/CORPSEARCH.ENTITY_INFORMATION?p_nameid=158239&p_corpid=130919&p_entity_name=%66%6F%72%74%75%6E%6F%66%66&p_name_type=%41&p_search_type=%42%45%47%49%4E%53&p_srch_results_page=0

http://appsext8.dos.state.ny.us/corp_public/CORPSEARCH.ENTITY_INFORMATION?p_nameid=497734&p_corpid=429628&p_entity_name=%66%6F%72%74%75%6E%6F%66%66&p_name_type=%41&p_search_type=%42%45%47%49%4E%53&p_srch_results_page=0

http://appsext8.dos.state.ny.us/corp_public/CORPSEARCH.ENTITY_INFORMATION?p_nameid=157408&p_corpid=130214&p_entity_name=%66%6F%72%74%75%6E%6F%66%66&p_name_type=%41&p_search_type=%42%45%47%49%4E%53&p_srch_results_page=0

http://appsext8.dos.state.ny.us/corp_public/CORPSEARCH.ENTITY_INFORMATION?p_nameid=2485832&p_corpid=2450826&p_entity_name=%66%6F%72%74%75%6E%6F%66%66&p_name_type=%41&p_search_type=%42%45%47%49%4E%53&p_srch_results_page=0

 



Edited by AttorneyPhillips on 5/6/2010 at 3:15 AM EST
Expert:  Phillips Esq. replied 4 years ago.
Now the system has gone haywire. My response just posted three times!!! It was very slow loading so I clicked couple of times to get it to move! Go figure!

Send me your questions.

I will respond later.

Have a good night.

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