Vincent Howard and our team of Rancho Cucamonga bankruptcy attorneys were interested to see an appeals court decision addressing some unusual complications in a bankruptcy case. In Boyher v. Radloff, debtors Gregory and Dorothy Boyher of Missouri reopened their bankruptcy case seven years after it was closed, in order to participate in a class-action lawsuit against a mortgage company. The settlement eventually brought them more than $20,000, which they agreed to split evenly with the bankruptcy estate. However, the trustee overpaid taxes on the windfall to the IRS, and that windfall was returned, causing a dispute over to whom it belonged. The Bankruptcy Appellate Panel of the Eighth U.S. Circuit Court of Appeals agreed with the bankruptcy court that the tax refund belonged to the bankruptcy estate.
The Boyhers filed for Chapter 7 bankruptcy in 1999 and closed the case without controversy in 2000. In 2007, they voluntarily reopened it to participate in a class-action Missouri case, McLean et al. v. First Horizon Home Loan Corp.. They filed an amended Schedule B to disclose their interest and asked the bankruptcy trustee to administer it. The trustee, Stuart Radloff, eventually struck a deal with the Boyhers that they would split the settlement, and the Boyhers would waive their claim to amounts paid into the estate except for the amounts specified as theirs in the agreement. In the end, the Boyhers were paid $25,165.29 from the settlement, and Radloff paid $800 in Missouri taxes and $2,200 in federal taxes before paying half the remainder to the Boyhers. The case was again closed in 2010.
However, the IRS refunded $1,972.35 as an overpayment, and Radloff again opened the case, proposing to use that money to pay creditors. Boyher objected, seeking to use it to pay later taxes. After a hearing, the bankruptcy court denied his objection "on the merits" and because the Boyhers had agreed to waive all claims to the trustee's portion of the money. Boyher appeals.
The BAP noted that the bankruptcy court was enforcing its own order (approving the compromise split) when it overruled Boyher's objection. Implicit in that ruling, it said, was the idea that the tax refund was the trustee's portion of the money, since that's the portion the Boyhers had waived any right to. This was not a clearly erroneous finding, the court said. The original agreement doesn't mention taxes, but the Boyhers never objected to the trustee's estimated tax payment. They could have negotiated with Radloff about whether they'd receive a portion of any refund, the BAP said; by not doing so, they waived their rights. The court acknowledged that the compromise showed an agreement to split everything evenly and that they likely expected the tax issue to be extinguished by the trustee's estimated payment. Nonetheless, it found that the clear language waiving their claim to the trustee's share was controlling, and upheld the bankruptcy court.
Vincent Howard and our Westminster individual bankruptcy attorneys sympathize with the Boyhers and agree with the BAP that the arrangement may violate the spirit of their agreement, even if it does comport with the agreement's text. This is an unfortunate outcome for a couple who likely thought they had protected themselves by negotiating an even split of the proceeds -- all of the proceeds. But courts love to enforce written contracts, so it's worth being very careful about what those contracts say. The Oceanside personal bankruptcy lawyers at Howard Law, P.C., don't encounter this issue all that often, but we certainly work hard to ensure that our clients are well protected by any settlements they reach, whether it's with a bankruptcy trustee or a creditor settling a lawsuit.
If you're considering bankruptcy as a way to escape serious debt you don't believe you can pay off, call Vincent Howard and the team at Howard Law. For a consultation, you can reach us through our website or at 1-800-872-5925.