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Paul K, Esq.
Paul K, Esq., Attorney
Category: Bankruptcy Law
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Experience:  10 years Exp., Great customer service, Prompt responses.
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Im still in Ch. 13, not confirmed yet as i am trying to clear

Resolved Question:

I'm still in Ch. 13, not confirmed yet as i am trying to clear this last title issue with the IRS. I completed the Application for Subordination and filed it with the IRS but they have asked me to file a motion in BK court and obtain an order stating that the IRS can subordinate their lien. Is this correct and if so, can you provide me with the language for the motion.
Submitted: 1 year ago.
Category: Bankruptcy Law
Expert:  Paul K, Esq. replied 1 year ago.

Paul K, Esq. :

Hello, my name is XXXXX XXXXX I would love to assist you. Give me a moment to research your issue and I will answer promptly.

Paul K, Esq. :

So, who would the IRS subordinate their lien too?

Paul K, Esq. :

The mortgage?


To my current lender who is modifying my loan

Paul K, Esq. :

So did they request the motion or the IRS?


The IRS made the request. They will not process my application until I have a court order

Paul K, Esq. :

So the IRS wants you to file a Motion to Subordinate their own lien to the mortgage company?

Paul K, Esq. :

That sounds odd, why would they want to do that?

Paul K, Esq. :

Or are they saying we wont voluntarily do it without a Court Order?


That's what they are saying. They also stated that because I am in Bk. they cannot do it without a court order

Paul K, Esq. :


Paul K, Esq. :


Paul K, Esq. :

Well I will look into this. This is not really a common or regular thing, and is something that may take you and an attorney alot of time.


I find it strange as well. What can I do

Paul K, Esq. :

I will see if I can find something and let you know.

Paul K, Esq. :

I will get back to you soon. Please don't forget to hit Accept by my responses and have great day!!!


Ok. I will wait for your response so I can hit accept.

Expert:  Paul K, Esq. replied 1 year ago.

I will look through this today and tonight and see what I can find out for you. Prepping a Motion for you can take time, so please be patient.

Expert:  Paul K, Esq. replied 1 year ago.
Here is one that was filed against the IRS. Obviously you will need to change the wording to fit your situation, but here is a successful one. I will post it in a minute to try to keep the formatting.
Expert:  Paul K, Esq. replied 1 year ago.


ENTERPRISES, INC. (the "Reorganized Debtor"), by and through its

undersigned attorneys

and pursuant to 11 U.S.C. § 510(c) files this Motion to Subordinate


Tax Penally Claim of the Department of the Treasury - Internal Revenue

Service (the "

IRS") as set forth in Claim No. 67, and in support thereof states as follows:



1. On January 13,2005 (the

"Petition Date"), the Debtor filed with this Court its


Petition for relief under Chapter 11 or the Bankruptcy Code.

2. The Debtor's P

lan of Reorganization was confirmed on July 14, 2006

pursuant to t

his Court's Order Confimling Debtor's Plan ofReorganizalion as Supplemented,


and Modi fied Pursuant to I I U.S.c. § 1129 (the "Plan") (D.E. # XXXXX).


Pursuant to Section 3.3 of the Plan, the Reorganized Debtor wishes to to pay


allowed priority tax claims in full from the proceeds of the sale of the 10 Acre Property


closed on December 29, 2006.

Case 9:05-bk-00699-ALP Doc 890 Filed 05/25/07 Page 2 of 8

Case No. 9:05-bk-00699-ALP


Claim No. 67 filed by .he IRS

4. On

or about June 8, 2006, the lRS filed Claim No. 67, amending its


filed Claim No. 41 dated May 19,2005.

5. As

set fonh in Claim No. 67, the lRS asserts that it is ent itled to: (i) an


non-priority claim in the amollnt ofS 14,973.90 (the "Unsecured Ponion"); (ii) a


red tax claim in the amount of$75, 193.69 plus $3,626.08 in pre-petition interest for a


lal of$78,8 19.77 (Ihe "Secured Tax Claim Portion"); (iii) a secured pre-petition penalty


in the amount of$40,0 13.26 (the "Secured Penalty Portion"); and (iv) an unsecured

priority claim in the

amount of $74,501.47 (the "Priori ty Portion"), for a total claim of



The Secured Penalty Ponion and the Unsecured Portion of Claim o. 67


epresent at total of S55,005.16 in penalties relating to the Reorganized Debtor's nonpayment


FICA tax li abilities far the periods set forth in the Fonn 10 attached to Claim No.


(.he ''Tax Penally Claims").


On December 20, 2006, the Reorganized Debtor filed its Corrected Objection


Claim No. 67, recommending that the Secured Tax Claim Portion be treated as a priority


aim and the Secured Penalty Portion be treated as an unsecured non-prio rity claim (Docket





(A) Subordination of

the Tax Penalty Claims Under Section 5 I O(c)

Pursuan! to Section

51 O(c) of the Bankruptcy Code, the Court may, "under principles

of equitable subord

inat ion, subordinate for purposes of distribution all or part of an allowed

claim to al

l or part of another allowed claim." 11 U.S.C. § 51 O(c). Thus, Ihe Statute clearly


Case 9:05-bk-00699-ALP Doc 890 Filed 05/25/07 Page 3 of 8

Cuse No.



this Court authority to subordinate the Tax Penalty Claims to the allowed unsecured


of the estate's general creditors. III re Cassis Bistro, IIIC., 188 B.R. 472,473 (Bankr.


Fla. 1995).


equities in this case strongly favor subordination. First, the Tax Penalty Claims

are clearly nonpecuniary claims

representing penalties re lating to the Reorgani zed Debtor's

failure to

withhold FICA taxes. Second, the LRS shall receive full payment plus interest on

its actua

l tax claims asserted in Claim No. 67 under the Plan since these claims are entitled to

priority treatment

under Section 507(a)(8) of the Bankruptcy Code. Third, after payment of


rative claims and priority claims, the monies availab le for distribution to general


red creditors will currently yield only a partial dividend. Consequently, it would be


le for this dividend to be further diluted by having the Reorgani zed Debtor pay the


Penalty Claims to the detriment of the general unsecured Class 3 creditors. /d. at 475


III re Airlift llllemational, In c., 120 B.R 597, 602 (Bankr. S.D. Fla. \990).


8 ) Subordination of the Tax Penalty Claims Under Section 1129(a)(7)


subordination is not only appropriate in this case but may indeed be

mandated as part

of the Plan to meet the requirements of § 11 29(a)(7). Bankruptcy Code


ion 1129(a)(7), the commonly called "best interest of creditors test", which requires


to receive a distribution nolless than they would receive if the Reorganized Debtor


liquidated under Chapter 7 on the effective date of the Plan.

Whether or

not the best interest of creditors test could have been satisfied in this case

without subordination,

reference to this Section 1 I 29(a)(7) confimlation requirement

provides additional support for subordinating

nonpecuniary tax penalty claims in a

liquidating Chapter

11 case. In re Cassis Bistro. Inc., 188 8.R. at 475. The Tax Penalty


Case 9:05-bk-00699-ALP Doc 890 Filed 05/25/07 Page 4 of 8


No. 9:05-bk-00699-A LP


at issue in th is case would be subordinated to the other allowed unsecured claims


I I U.S .C. § 726(a)(4) if this estate was liquidated under Chapter 7. lei. Accordingly,

the Class 3

unsecured credi tors in this case would fare better in a Chapter 7 unless the Tax


Claims were subordinated for distribution under the Plan because there is currently


enough funds available from the proceeds of the sale of the 10 Acre Parcel 10 satisfy all

of the

Class 3 Claims in this case. ld. Finally, it would make no sense to actually require a


to Chapter 7 (with its attendant administrative expenses) solely to obtain the


utory right to subordinate the Tax Penalty Claims in a liquidation when Bankruptcy Code

Section 5

1 O(c) provides an appropriate vehicle for achieving the same legitimate goal. Id.


V. Conclusion


t of Tax Penalty Claims in this case pro rata with other general unsecured

claims would

hann innocent creditors in favor of[RS which is going to receive full payment


interest on its underlying tax claims. Equitable subordination of the Tax Penalty


is both pennissible under § 510(c) and appropriate under the facts of this case.


, the Reorgani zed Debtor, Morande Enterprises, Inc. respectfully

requests the

entry of an Order Subordinating the Tax Penalty Claims Asserted by the IRS in


Amount of $55,005.16 to the Claims of the Class 3 General Unsecured Creditors and


any further rel ief deemed fa ir and just under the circumstances.


Ih is 25th day of May, 2007.


Expert:  Paul K, Esq. replied 1 year ago.
THis is all public record and public knowledge and therefore not copywrited or anything. You can use this format for your Motion.
Customer: replied 1 year ago.

This is for a Chapter 11 ( business) not a Chapter 13(individual). I'm not sure how I can use this for my motion. Please explain.

Expert:  Paul K, Esq. replied 1 year ago.
The Chapter doesn't matter as much, it is the BK Code sections that are important. Section 510 of the code discusses subordination, so the Motion here is the framework of you will use. You can basically use this motion and change the facts and chapter and dates to fit your situation.
Paul K, Esq., Attorney
Category: Bankruptcy Law
Satisfied Customers: 141
Experience: 10 years Exp., Great customer service, Prompt responses.
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