While most of the US media is focused on various bills that have been hung up in congress over the last year, a bill providing additional tax relief to family farmers through Chapter 12 bankruptcy, has not received much attention. On October 26, 2017, President Trump signed the Family Farmer Bankruptcy Clarification Act of 2017 (H.R. 2266) into law. This new law expands the tax relief granted to family farmers in 2005, and legislatively overturns the narrow interpretation of the Supreme Court of that 2005 act.
In the unreported decision of Grossman v. Wehrle (In re Royal Management, Inc.), the Sixth Circuit joined ranks with the Second, Third and Seventh Circuits in holding that "a bankruptcy court is a 'court of the United States' within the meaning of 28 U.S.C. § 1927," opposing the position taken by the Ninth and Tenth Circuits.
A homeowner is considered to be "underwater" or "upside down" on their house if they owe more to the bank on their mortgage (or mortgages) than the value of the home. Some homeowners in this position are simply unable to sustain the expenses of retaining the home, and unable to continue making payments. There are options other than bankruptcy for those homeowners, but many of those options carry the threat of an increased income tax burden. For example, a homeowner may be able to obtain a mortgage modification that reduces the amount of the debt to match the value of the home or obtain a short sale, where the bank agrees to take a bit less (to a lot less) than what they are owed in order to have the house sold for fair market value - without the delay and expense of foreclosure. Since both of these options include the bank forgiving a portion of the mortgage debt, the default rule in the tax laws requires the bank to issue a 1099 for the amount of debt that is forgiven, which is treated as income to the homeowner. While the tax laws include permanent provisions that are available to some homeowners to exclude this phantom income from income for the year, the rest of the homeowners may be left with a high tax bill. Although the mortgage could have been cleansed in a bankruptcy case, the tax bill resulting from dealing responsibly with the debt load cannot be dealt with in a bankruptcy for quite some time.
When filing for bankruptcy, a person may exempt "retirement funds" from the bankruptcy estate. However, last week the Supreme Court decided that the term "retirement funds" does not include funds in an inherited IRA.