Source: https://law.justia.com/cases/federal/appellate-courts/F2/965/554/19865/
Timestamp: 2019-09-16 16:09:50
Document Index: 417801499

Matched Legal Cases: ['§ 523', '§ 727', '§ 523', '§ 507', '§ 523', '§ 507', '§ 1141']

In Re Henry E. Montoya, M.d. and Juanita F. Montoya, Debtors.henry E. Montoya, M.d. and Juanita F. Montoya, Plaintiffs-appellants, v. United States of America, Defendant-appellee, 965 F.2d 554 (7th Cir. 1992) :: Justia
Justia › US Law › Case Law › Federal Courts › Courts of Appeals › Seventh Circuit › 1992 › In Re Henry E. Montoya, M.d. and Juanita F. Montoya, Debtors.henry E. Montoya, M.d. and Juanita F. M...
In Re Henry E. Montoya, M.d. and Juanita F. Montoya, Debtors.henry E. Montoya, M.d. and Juanita F. Montoya, Plaintiffs-appellants, v. United States of America, Defendant-appellee, 965 F.2d 554 (7th Cir. 1992)
US Court of Appeals for the Seventh Circuit - 965 F.2d 554 (7th Cir. 1992)
Argued April 14, 1992. Decided June 25, 1992
Juanita and Henry Montoya filed several successive bankruptcy petitions, first under Chapter 11 and later under Chapter 7. They contend that assessments against them for federal income taxes due more than three years before their current bankruptcy filing are not entitled to priority and should be discharged. The bankruptcy and district courts both disagreed, finding that the three year window for collecting the taxes under 11 U.S.C. §§ 523(a) (1) (A) and 507(a) (7) (A) (i) had been suspended by events in the bankruptcy court leaving the government without the requisite time to pursue its claims. The Montoyas appeal. We affirm.
Under Chapter 7 of the Bankruptcy Code a debtor may, with certain exceptions, be discharged from all debts incurred before a bankruptcy petition is filed. 11 U.S.C. § 727(b). Exceptions are found in § 523 which renders nondischargeable debts which are entitled to priority under § 507 of the Code. 11 U.S.C. § 523(a) (1) (A).1 Section 507 mandates that taxes due within three years of the bankruptcy petition are not dischargeable. 11 U.S.C. § 507(a) (7) (A) (i).2 Therefore, absent the Chapter 11 proceeding the Montoyas' tax debt would have been discharged because the last date on which the their tax returns could have been filed fell outside the three-year nondischargeability or what the parties have called the "look-back" period.
The Montoyas do not dispute that calculation of the lookback period in the pending Chapter 7 case does not include the time the automatic stay was in place during the two earlier bankruptcy proceedings. That principle is consistent with the reasoning in Brickley v. United States (In re Brickley), 70 B.R. 113 (Bankr. 9th Cir.BAP 1986), and numerous subsequent cases. See, for example, Molina v. United States (In re Molina), 99 B.R. 792 (Bankr.S.D. Ohio 1988); United States v. Deitz (In re Deitz), 116 B.R. 792 (Bankr.D. Colo. 1990); In re Quinlan, 107 B.R. 300 (Bankr.D. Colo. 1989).
Brickley involved serial filings under Chapter 13 and Chapter 7. The debtors initially filed under Chapter 13 during which time the IRS filed proofs of taxes owed within three years of the filing. The Chapter 13 proceedings took almost three years to complete, and when the Chapter 13 case ended the debtors filed for bankruptcy under Chapter 7. The appellate bankruptcy panel rejected the debtors' contention that the IRS claims were discharged concluding that "to follow the Debtors' argument would render the extension of the statute of limitations in Section 108(c) without meaning, since tax collectability is obviously useless if the tax debt has been discharged." 70 B.R. at 115. The court recognized that such a result would sanction tax avoidance schemes since debtors could simply file a subsequent bankruptcy petition after three years had passed and deliberately avoid paying their tax debts. Id. at 116. Cf. In re Official Committee of Unsecured Creditors of White Farm Equipment Co., 943 F.2d 752, 757 (7th Cir. 1991), cert. denied, --- U.S. ----, 112 S. Ct. 1292, 117 L. Ed. 2d 515 (1992) (Section 507 should be interpreted "so as to ensure that the delicate balance of the priority and discharge scheme established by the Code is not skewed by the unanticipated development of serial Chapter 11 filings.").
The government responds that the IRS was only free to collect for two periods before the second Chapter 7 filing: between August 11, 1987, when the Chapter 11 case was closed, and February 15, 1989, when the first Chapter 7 petition was filed, and from July 12, 1989 until July 14, 1989, the period between the two Chapter 7 filings. Prior to August 11, 1987, the IRS argues that it was barred from collecting by the automatic stay and then by the provisions of the confirmed plan. Section 1141 of the Bankruptcy Code provides that the provisions of a confirmed plan are binding on both the debtor and creditors. 11 U.S.C. § 1141(a). See also Paul v. Monts, 906 F.2d 1468, 1471 (10th Cir. 1990). Between April 4, 1985 and April 23, 1986, the IRS argues that it was also prevented from acting when its claims were disallowed by the bankruptcy court.
(A) of the kind and for the periods specified in section 507(a) (2) or 507(a) (7) of this title, whether or not a claim for such tax has been allowed; ....
Section 507(a) (7) (A) (i) provides: