Ford Motor Credit Company repossessed a Chapter 7 debtor’s vehicle, without any warning, about three months after discharge, when she was current on her post-petition monthly payments. (The record is unclear whether she had ever defaulted on payments pre-petition.) The balance on the loan exceeded the value of the vehicle. The contract contained an “ipso facto” clause, stating that debtor’s filing of a bankruptcy case would be in itself constitute a default of the contract. Her Statement of Intentions had stated that she would “retain the collateral and continue to make regular payments” The creditor sent a proposed reaffirmation agreement and then its attorney sent an email to debtor’s attorney requesting reaffirmation, but debtor’s attorney “declined the offer.” (The terms of the reaffirmation offer were not clear from the record.) After the repossession, Debtor reopened the case and claimed that Ford Motor Credit had violated the discharge injunction. The bankruptcy court for the Southern District of California denied the motion.  The 9th Circuit affirmed the denial.

For free or low cost help with reaffirmation hearing click. 

Getting paid is getting harder. Not because more customers are trying to conserve cash by extending payment terms, but because they are going out of business altogether.

According to BankruptcyData.com, a research firm that tracks such filings, 114 publicly held U.S. companies filed for bankruptcy so far this year, versus 57 during the first six months of 2008, and 33 in the same period of 2007. Sadly, this year’s $368 billion of write offs thus far dwarfs the $105 billion at this point back in 2001, when the last bubble burst.

How to ease the pain of dealing with bankrupt customers? Understand a few things about “reclamation rights” and “critical vendor” orders.

Reclamation is just what it sounds like. It permits a vendor to take back a certain amount of goods that it sold to a broke customer. There are two situations to consider: before a customer files for bankruptcy and after a filing.

If the customer has not filed for bankruptcy, a vendor’s reclamation rights are governed by the Uniform Commercial Code (UCC). This law provides the vendor with the right to reclaim goods a customer bought on credit “while insolvent” if the vendor makes a demand within 10 days after the customer received the goods. This 10-day period means that, absent a bankruptcy, a vendor’s reclamation right will be limited to reclaiming only those goods received by the customer in the 10 days prior to the demand.

To exercise a reclamation right before bankruptcy (assuming the customer is still in possession of the goods), the vendor must make a demand, in writing, and identify the goods being reclaimed during the applicable time period. Sounds easy, but the language can be tricky, which is why you should have your lawyer draft the demand. Send the letter certified so you have proof of receipt.

If the bankruptcy has already happened, the Bankruptcy Code comes into play. Once a bankruptcy is filed, a vendor can assert a reclamation demand for goods received within 45 days of the bankruptcy filing. Note, however: (1) the goods must have been sold in the “ordinary course” of the vendor’s business, and (2) the debtor must have received the goods while insolvent. If you meet those two requirements, the reclamation demand must be in writing within 45 days of the receipt of the goods by the customer. If the 45-day period expires after the bankruptcy case is filed, the vendor must make the reclamation demand within 20 days after the bankruptcy filing. (The demand should read similarly to the pre-bankruptcy reclamation demand.)

If you are a creditor of the company in bankruptcy, you will be notified in short order by the bankruptcy court. It’s best to act quickly to protect your rights, but there is some wiggle room. Even if a vendor fails to make a reclamation demand, a new Bankruptcy Code section gives vendors an administrative priority claim for the value of any goods received by the debtor within 20 days prior to the bankruptcy filing–if the goods were sold in the “ordinary course” of the debtor’s business. (Tortuous, I know.)

Then there is something called a “critical vendor” order. Once a company files for bankruptcy, it usually is not permitted to pay any of the amounts that were owed prior to its bankruptcy filing. But the courts have created an exception for vendors that are “critical” to the ongoing business of the bankrupt customer. (“Critical” implies that you supply an otherwise unavailable good or service essential to the ongoing operations of the debtor.) Your burden is convincing the debtor that you are indeed critical and that, absent payment of your pre-petition claim, you will no longer do business with that company and, without you, the likelihood of the debtor being able to successfully reorganize is diminished.

Even if you are able to convince the debtor, the debtor must then convince the court. Suffice it to say that there is a ton of case law as to what constitutes a critical vendor, and the standard changes from time to time. Again, a good lawyer helps.

Bottom line on all of this? When it comes to reclamation, act quickly and you just may recoup some losses. As for claiming critical vendor status, don’t count on it.

On-line Conference Payment

According to UCLA Anderson Forecast senior economist Jerry Nickelsburg, the current forecast for California ”reflects a deeper and longer recession than we previously thought.”

The forecast for California is for a very weak first three quarters of 2009 and virtually no growth in the fourth quarter of this year. The economy will begin to pick up by 2010, and by the end of next year, the state’s economy will begin to grow at something resembling normal levels.

“The keys to California’s recovery are [a] recovery in U.S. consumption improving the demands for imports from Asia and the demand from California’s factories, the resumption of non-residential public works and multi-family residential construction growth, and the return of growth to the retail sector,” Nickelsburg writes. 

 As for the state’s unemployment situation, it is expected to get worse. The Forecast expects the unemployment rate for California to rise to 11.9 percent in the second quarter of 2010 and average 11.7 percent for the year.

 ”Though the California economy will be growing in 2011, it will not be generating enough jobs to drive the unemployment rate below double digits until the following year,” the report notes.

“We are developing John Doe summonses on other banks,” Daniel Reeves, an agent with the IRS’ Offshore Compliance division, told Reuters on the sidelines of a conference in Miami on offshore finance.

He was referring to the kind of subpoena filed by the IRS against UBS seeking to force the bank to turn over the names of clients suspected of evading U.S. taxes.

Reeves declined to say which, or how many, other banks could face cases filed by the IRS, but he confirmed the entities being investigated were foreign-based like UBS.

“We have identified other offshore banks that are engaged in similar activities,” he earlier told the conference.

Contact us for a conference regarding the Amnesty program for unreported, offshore investment accounts.  Amnesty runs out 10-15-09.

Yes–

1. The IRS has served subpoenas on International Visa and Master Card to find users of offshore-credit-cards. click here offshore-credit-cards.
2. The IRS commissioner has also made finding and auditing offshore account owners a priority.
3. Treasury arrest a Swiss Banker and forced the disclosure of US taxpayers.
4. The G20 have agreed to go after the “dirty little tax havens” in the Caribbean and elsewhere to force automatic disclosure of U.S. taxpayers with accounts.

The form is here. f90221

What are the penalties for an undisclosed foreign bank account?

The answer is that the penalties, both criminal and civil, are huge.

The penalties are:

• Failure to File Penalty – up to $250,000 and/or up to 5 years in prison for any person “willfully violating” the requirements to file. (31 CFR 5322a penalty)
• Fraud Penalty – up to $500,000 and/or up to 10 years in prison for any person “willfully violating” the requirements to file “as part of a pattern of any illegal activity involving more than $100,000 in a 12-month period.” (31 CFR 5322b penalty)
• False Information Penalty – fine or up to 5 years in prison for any person providing false, misleading, fictitious, or fraudulent statements on TD F 90-22.1; or up to 8 years in prison if the false information involves domestic or foreign terrorism. (18 CFR 1001 penalty)

Foreign corporations used in a tax evasion schemes to create service charges for U.S. corporations or add to the cost basis of goods sold by the U.S. corporations.  These bogus charges are then kicked back through foreign bank accounts to the U.S. corporation or their shareholders.  This loophole is also covered because a foreign corporation regularly doing business in the U.S. must also report–or it and its shareholders will face the same stiff penalties.

Further, using foreign nationals or other schemes, to sneaked kick backs back into the U.S. to buy real estate or other investments is, among other things, criminal tax evasion and money laundering.  Such schemes demonstrate “willful violations” of the FBAR rules, subjecting the participants to the maximum fines as well as criminal penalties.

Finally, because of the possibility of criminal prosecution, you should hire a tax attorney who then hires a tax preparer because a CPA’s immunities do not include criminal tax evasion. For a consultation about undisclosed offshore corporations and personal bank accounts, please contact us to set up an appointment.  Your interview will be held in strict confidence.

• Payment of all taxes and interest for the previous six years.
• Assessment of an accuracy penalty under Internal Revenue Code Section 6662 or a delinquency penalty for all years
• An undisclosed Foreign Bank Account (FBAR)  penalty of 20% of the highest account balance during the six year period.

In the case of inherited accounts, or other accounts that the taxpayer did not cause to be opened the penalty may be reduced to 5% if other qualifications are met.

Under the settlement initiative taxpayers will not be assessed tax fraud penalties of 75% of the unpaid tax, or the full amount of the FBAR penalties which can equal to 50% of the account balance per year!

This offer is only open to taxpayers who make voluntary disclosures by . Taxpayers must fully cooperate with the IRS in any civil or criminal investigation in order to take advantage of these terms. Taxpayers will be asked detailed questions from the IRS regarding how they came to open their offshore bank accounts, and will be required to give names. We expect that the IRS will use this information to open tax audits of taxpayers who do not come forward.

Normally if the IRS is already aware that a taxpayer has a foreign bank account any subsequent disclosure is not considered a voluntary disclosure, and leaves the taxpayer open to both civil and criminal tax penalties.

Besides the above civil penalties, if you commit tax evasion or tax fraud the IRS can prosecute and send you to jail.  Generally most tax crimes carry a maximum five year prison term and a fine of $100,000.

Under the amnesty program, the IRS will not seek criminal prosecution for a good faith disclosure.

The travel bans, which have not been brought in by all banks, have focused on those visiting the US, following the detention there last year of a senior private banker from UBS, Switzerland’s biggest bank, as part of a federal tax investigation.

The head of the private bank, which itself has no travel restrictions, said: “Today if you are a banker from Switzerland going to the US you have to fear you will be taken in for questioning. I am thinking twice about going to America.”

However, four people in the private banking industry in Geneva told the Financial Times of banks bringing in total travel bans for staff, even for adjoining European countries.

“Private bankers aren’t even travelling to France. The partners are not leaving Geneva at all,” said a senior industry figure close to several private banks. No bank contacted by the Financial Times wanted to discuss the matter publicly.

The restrictions come ahead of next week’s Group of 20 summit where a clampdown on tax havens is set to be discussed.

Under pressure from other countries, Switzerland, which is estimated to account for about a third of the world’s $11,000bn in clandestine personal wealth, agreed this month to ease its bank secrecy laws and accept international standards on tax transparency.

Private wealth management, bank secrecy laws, and U.S. criminal tax evasion needs far more attention from Congress.

 Exert from: The Miami Herald Posted on: April 6, 2009

By Patrick Danner, The Miami Herald

A key component of President Barack Obama’s plan to curb the rising tide of foreclosures is to give bankruptcy judges the power to write down mortgage debt for people in bankruptcy court. It’s known in bankruptcy as a “cram down.”

The legislation has the support of numerous judges, including A. Jay Cristol, chief judge emeritus of the U.S. Bankruptcy Court in Miami.

Cristol, who was appointed to the bench nearly 24 years ago, believes the legislation is needed to prevent people from otherwise being put out of their homes. He blames the banks and mortgage brokers for inducing unsophisticated borrowers to enter into adjustable-rate and other exotic mortgage loans.

“Sadly, we put people out of high school who can’t balance a checkbook, who don’t understand finances,” Cristol says. “If you’re of the attitude, well those people have to look out for themselves, the hell with them, then that’s one philosophy. That’s not my philosophy.”

The bill already has passed the House of Representatives, but doubts about whether it will clear the Senate have caused it to stall. A vote may not happen until after April. …

Q:Why should bankruptcy judges be given the power to renegotiate the terms of a debtors’ mortgage loan?

A: Bankruptcy judges were given the power to renegotiate the terms of every type of loan of debtors in 1979, with the exception of primary home loans. The net result is, it works. We help everybody. Generally, it’s to the benefit not only of the debtor but also of the lender.

Today, the banking lobby, the banking industry is kidding itself and is stupid. They have a loan on the books that is $500,000 and they have it secured by a property worth $300,000. [But] they still want to carry it on the books as a $500,000 loan, when it isn’t. And they foreclose on it, since we can’t stop them and rearrange the loan. [So] they suffer not only the loss of the fictitious value they are carrying on their books, but they’ve got a nonperforming loan.

They take a beating on a home, where if they made an adjustment and allowed the debtor to stay there, they would have had a performing loan. They would have had a lesser return than they would have liked, but it still would have been a performing loan at a modest profit. Instead, through their greed on wanting the bigger profit, they shoot themselves in the foot. The bankers are, in my opinion, greedy and stupid and not acting in their own best interest. …

Q: Some people have the opinion that giving bankruptcy judges this power would simply be rewarding bad behavior by helping people who took out loans that were more than they can afford. How do you respond?

A: It may be that in some instances it would be rewarding them. On the other hand, if they took out a loan and could make the payments on it, then everyone benefits. …

If we can readjust that [loan], then they can stay in the house, the family stays together, the car [lender] gets paid, the bank gets paid. But if the car [lender] takes away the car, then [the debtor] can’t get to work and then they lose the salary to pay the mortgage. They’re out of the house. Under those circumstances, they can’t get credit to buy another house. They’ll be lucky to find an apartment. Many times they are on the street.

…

Q: Will this open the floodgates for people filing for bankruptcy?

A: I remember in law school when they talked about opening the floodgates, one professor said, “I wonder when they talk about opening the floodgates, what are they afraid will flow through? Justice?”  …

This makes a lot more sense for the market place than keeping Obama’s mortgage plan bottled up in the Senate so that foreclosures continue to drag down everbody’s home values.