My friend’s fact pattern was a bit more complex than the unresolved auto accident:  an exspouse was complaining that a title company mix-up left the property the ex got in the property division encumbered with the client’s  new loan, rather than the client’s property.  The young lawyer’s first reaction was that the ex wasn’t a creditor who could bring a non dischargeability suit.

The statutory definition of claim in 101(5) is very broad:

(B) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured.

So, in my friend’s case, the ex’s complaint about the equity in her home being wrongfully reduced by the errant lien certainly falls within this definition.  It’s an entirely different question whether this is a non dischargeable debt or whether the debtor is the one responsible.

Add to the teaching of Johnson v. Home State that a claim isn’t limited to debts for which there is personal liability, the proposition that a claim needn’t be contractual, liquidated , or  undisputed to be a claim within the meaning of the code.

Add to your intake procedures questions that flush out the sort of dispute or financial exposure that isn’t the subject of a monthly bill.

Image courtesy of  shuets udono

That’s the question that the Supreme Court resolved in Johnson v. Home State Bank, the next on our summer reading list for new bankruptcy lawyers.  Believe it or not, it was 12 years after adoption of the 1978 Code before we got an answer as to what a “claim” was.

Johnson mortgaged the farm, fell behind, and filed Chapter 7.  After his discharge, which eliminated his personal liability on the promissory notes, he filed Chapter 13 just ahead of the foreclosure sale.  The district court and the circuit court both held that the bankruptcy court erred in confirming the plan, finding that the Code did not allow a Chapter 13 plan to modify a claim where the debtor had no personal liability.

I won’t tell you how it came out.  Read it for yourself and savor Justice Marshall’s clear and straightforward treatment of the issue.

And resign yourself to a decade of waiting for definitive answers to some of  the questions raised by BAPCPA.

Earlier entries on the summer reading list:  Dewsnup; Till;  Patterson v.Shumate;  Rash

Why is this important for bankruptcy lawyers?  The tax debt, even if payment isn’t yet due, is a debt for purposes of the means test priority debt line after Dec. 31.  For the over median income filer, it is one more allowable deduction from income.

If the return hasn’t yet been filed, you can either prompt the client to get it done ASAP, or estimate the unpaid portion of the last year’s tax.

Consider as well if last year’s withholding was less than the actual debt, is the current withholding sufficient to equal the tax burden of the current tax year?

More on taxes and when they are dischargeable.