Chapter 13 filing and property liquidation to satisfy an IRS judgement

I am writing this for the non-legal audience that has an interest in real estate, so if you have a bar number, I would skip this and turn the page to the next article!
 
Having a basic understanding of how our laws impact real estate can’t be overstated. Here, I have taken one judge’s opinion on a recent bankruptcy case and have tried to help define several terms that non-lawyers have heard, but should know more. As well, this case is just one more example of why it is important to have good legal counsel when dealing with bankruptcy.
 
This case is Jackson v United States, No. 24-6002 ((8th Cir. 2024) Justia) and it involves William Phillip Jackson (“Debtor/Appellant”), who owes unpaid federal taxes to the United States(“Appellee”).
Following a jury trial and post-trial proceedings (such as filing a motion to a higher court if the lower court's decision was deemed unfair, formalising the judgment in writing by the court, bringing post-trial motions, such as a motion for judgment of acquittal or a motion for a new trial, pursuing an appeal or revision application), the United States District Court for the Western District of Missouri (which has jurisdiction over 66 counties in the western half of Missouri) entered a judgment against Jackson for $2,396,800.47 and ordered the foreclosure and sale of four properties owned by Jackson and his wife. Ouch!
 
Jackson filed multiple motions to amend or correct the terms of the sale, vacate (cancel) the sale in its entirety, obtain miscellaneous types of relief and other pleadings pro se[1] – each of which were denied. His subsequent appeals to the Eighth Circuit Court of Appeals (which has jurisdiction over the states of Minnesota, Iowa, North Dakota, South Dakota, Nebraska, Missouri and Arkansas) were also unsuccessful. Jackson wasn’t a complete loser. He was able to get the District Court to modify the sale order to allow one individual/tenant to continue to occupy one of the properties and operate his auto repair business, pending the sale.
 
On 23 January 2024, Jackson filed a pro se petition for bankruptcy relief under Chapter 13 of the Bankruptcy Code in bankruptcy court. At the same time, the United States District Court for the Western District of Missouri scheduled the evictions of all tenants in the four properties (and the seizing of any personal property for a day later (24 January)and the sale of the four properties for the following day (25 January). The District Court didn’t know about Jackson’s bankruptcy filing. As soon as United States learned of the bankruptcy filing, it canceled the scheduled auction sales of the four properties. Unfortunately, the evictions and seizure of personal property (in this case it was primarily cattle) had already occurred. Each event only one day apart.
 
To back up a bit, for clarity, a few of the typical components of Chapter 13 are:

• Debt repayment plan:Debtors propose a repayment plan to the bankruptcy court, which outlines how they will pay off their debts, often over a period of three to five years and under court supervision.
• Court supervision:The court oversees the repayment process and ensures that creditors are treated fairly.
• Debt discharge:After successfully completing the repayment plan, many outstanding debts are canceled.

 
Below is a little more detail related to the typical eviction and the seizing of personal property:
 

• Eviction proceedings:The court may issue eviction orders based on legal grounds, such as non-payment of rent or violation of lease terms. In this case it was the need to sell property to satisfy a judgement for unpaid federal income taxes. The process typically involves a hearing where the tenant’s rights are consideredand in this case, the opinion states that at least one of the properties was leased to an auto repair business. I have not been able to determine if the tenant in the three other properties was M/M Jackson or if they were leased to others.
• Seizure of personal property:If a tenant fails to vacate the property, the court may issue a seizure warrant for personal property. This can occur in cases of criminal forfeiture or other legal actions. In California, where I live, the hiring of a county sheriff to come to the property with the petitioner/landlord, have anyone in occupancy vacate, and the changing of the locks are common practice.
• Jurisdiction: District courts have original jurisdiction over civil proceedings, including those related to evictions and property seizures, under the Bankruptcy Code.
• Legal framework:The court must follow established legal procedures, including issuing (written) notices and ensuring compliance with federal laws regarding property seizures.

 
The United States Bankruptcy Court for the Western District of Missouri (“bankruptcy court”) heard Jackson's latest motion, a motion for contempt, filed on 24 January 2024. This procedure for enforcing court orders is typically filed when one party refuses to follow a court order. The motion is a request to the court to force someone to comply with the terms of a previous court order. Any violation of the terms of an order can be the basis for contempt. For example, a party may file a motion for contempt if the other party is not paying support, following the custody schedule, or in this case paying federal income taxes due and turnover of property (real and personal).
 
Jackson argued that the United States eviction proceedings and its seizure of his personal property violated the automatic stay and requested that the bankruptcy court hold United States in contempt and order the turnover (return) of the seized property (which, in part, was his cattle).
 
Four days after the Jackson’s filing, on 29 January, United States filed a Motion to Lift the Automatic Stay (a formal request made by a creditor to the bankruptcy court to terminate or modify the automatic stay that is in place). This motion allows the creditor to resume collection actions against the debtor, such as repossessing property or foreclosing on a mortgage, after the debtor has filed for bankruptcy. The automatic stay is designed to protect debtors during the bankruptcy process, but once lifted, creditors can take further actions against the debtornunc pro tunc.[2]
 
The bankruptcy court denied Jackson's motion and granted United States' motion, annulling the automatic stay retroactively to the date of Jackson's bankruptcy filing (back on 24 January). Jackson appealed this decision but did not seek a stay of the order pending appeal.
 
The United States Bankruptcy Appellate Panel for the Eighth Circuit reviewed Jackson’s motion for contempt and turnover and United States’ motion to retroactively lift the automatic stay, on 8 February 2024. The panel subsequently held a telephone hearing on 14 February to announce its oral ruling denying Jackson’s motion and granting the United States motion.
 
Jackson wasn’t finished fighting the $2,396,800.47 judgement! He timely appealed the bankruptcy court’s order and three months later, on 7 May 2024, while his appeal was pending, he filed an emergency motion in the federal district court, seeking to stay the auction sale of the properties. The United States went ahead and sold the four properties at auction the following two days (on 8 and 9 May) then responded to Jackson’s motion asserting that the motion was constitutionally moot.
 
The court held, in an order on 13 June, that since the properties had been sold and Jackson did not obtain a stay pending appeal, there was no effective relief that could be granted. Consequently, the appeal of the bankruptcy court's order annulling the stay and denying Jackson's motion for contempt and turnover was dismissed for lack of jurisdiction (a court's inability to provide relief can be a reason to state that they lack jurisdiction). The court entered an order confirming the sales and approving the disbursement of the sale proceeds on 14 August.
 
On 26 August, United States filed a status report asserting that Jackson’s appeal was moot to the extent of the relief Jackson sought (to stop the sale and acquire the rights to the real and personal property [i.e. livestock] that was sold).
 
A primary error by Jackson was that he sought a stay of the auction sale in the district court, pending his appeal. He should have sought a stay in the bankruptcy court. If he had, the properties would not have been sold as quickly, and the court would have retained jurisdiction. Therein is another example of the risks taken when representing yourself in judicial proceedings.
 
Stan Mullin, SIOR, CCIM, CRE, FRICS
Commercial real estate expert witness
Managing Member
Mullin Capital & Asset Management, LLC
4000 MacArthur Blvd., East Tower, Suite 600
Newport Beach, CA 92660-2558
BRE License 00833110
SMullin@MCAreceiverships.com
www.MCAreceiverships.com
Tel  (949) 681-8020
Cell (949) 422-0864
Fax (949) 681-8014
 
Stan Mullin is an estate trustee and commercial real estate expert witness. He has written more than 30 articles on the law and commercial real estate and has taught ethics and lease, purchase and agency contracts for Grubb & Ellis, SIOR, CAR, BOMA and AIR throughout the U.S. Stan has previously served as the President of the Society of Industrial & Office Realtors in Washington, D.C., the AIR Commercial Real Estate Association in Los Angeles, CA, and was a trustee for the Realtors Political Action Committee (RPAC).