Cite as: Keith M. Lundin, Lundin On Chapter 13, § 136.15, at ¶ ____, LundinOnChapter13.com (last visited __________).
BAPCPA made changes to the rules for allowance of administrative expenses under § 503 that may affect debtors in Chapter 13 cases.
Section 503(b)(1)(B) was amended by BAPCPA to allow as an administrative expense any tax incurred by a bankruptcy estate “whether secured or unsecured, including property taxes for which liability is in rem, in personam, or both.”1 More than half of Chapter 13 estates include real property. When the debtor retains real property through the plan, it is likely that property taxes will be incurred during the Chapter 13 case. After BAPCPA, without regard to whether property taxes are personal to the debtor or only in rem liability, property taxes incurred by a Chapter 13 estate are administrative expenses entitled to second priority under § 507(a)(2) and to payment in full under § 1322(a)(2).
BAPCPA relieved governmental units of the ordinary predicate to allowance of an administrative expense that the holder must “timely file a request for payment . . . or may tardily file such request if permitted by the court for cause.”2 As amended by BAPCPA, § 503(b)(1)(D) provides that a governmental unit “shall not be required to file a request for the payment of an expense described in [§ 503(b)(1)(B)] as a condition of its being an allowed administrative expense.”3
Absolving governmental units of the need to file a request for payment of an administrative expense makes little sense even for the governmental unit. Without the filing of a request for payment, it is not likely that the Chapter 13 trustee will know that there is an unpaid tax incurred by the estate. Until a request is filed and allowed, the trustee is not going to pay a tax incurred by the estate whether it is an “allowed” administrative expense or not. Without the filing of a request for payment, no party in interest will know of the existence or amount of the administrative tax expense for purposes of filing objections.
The statutory requirement to file a timely (or tardy) request for payment of an administrative expense benefits everyone in a bankruptcy case including the unpaid governmental unit under § 503(b)(1)(B). Without the signal to all involved that a tax has been incurred by the estate and that a governmental unit wants payment on a priority basis, the orderly management of the tax debt is disabled.
BAPCPA amended § 503(b)(7) to define and limit the administrative expense that can result when a lease of nonresidential real property is first assumed under § 365 and then rejected during a Chapter 13 case.4 As amended, § 503(b)(7) limits the administrative expense upon rejection after assumption to monetary obligations due for a period of two years—net only of sums actually received from an entity other than the debtor that then leases the property. The remaining claim for any balance due through the term of the lease becomes an ordinary lease rejection claim under § 502(b)(6).
Chapter 13 debtors sometimes are party to leases of nonresidential real property. New § 503(b)(7) will limit the administrative expense claim that would otherwise result from an improvident assumption during the Chapter 13 case.
BAPCPA created a new administrative expense in § 503(b)(9) for “the value of any goods received by the debtor within 20 days before the date of commencement of a case . . . in which the goods have been sold to the debtor in the ordinary course of such debtor’s business.”5 Although obviously of greater impact in Chapter 11 cases, the unwary Chapter 13 business debtor will be trapped by new § 503(b)(9) by filing the Chapter 13 case too soon after purchasing goods in the ordinary course of business. What would have been an ordinary prepetition unsecured claim becomes an administrative expense entitled to payment in full when the Chapter 13 case is filed within 20 days of the purchase of goods in the ordinary course of the debtor’s business.
Notice that new § 503(b)(9) does not use the term of art “debtor engaged in business.” As used in § 1304, a Chapter 13 debtor that is “self-employed and incurs trade credit in the production of income from such employment is engaged in business.”6 Read strictly, § 503(b)(9) generates an administrative expense when goods are sold to a Chapter 13 debtor within 20 days of the petition in the ordinary course of the debtor’s business without regard to whether the debtor is engaged in business for purposes of § 1304. This raises the possibility that a Chapter 13 debtor with a part-time business—even casual buying and selling to supplement income—could incur administrative expenses by buying goods within 20 days of the petition. This becomes a timing issue for debtor’s counsel when preparing the case for filing.
1 11 U.S.C. § 503(b)(1)(B)(i), discussed in § 513.1 [ Taxes ] § 136.3 Taxes after BAPCPA.
2 11 U.S.C. § 503(a), discussed in § 513.1 [ Taxes ] § 136.3 Taxes after BAPCPA.
3 11 U.S.C. § 503(b)(1)(D), discussed in § 513.1 [ Taxes ] § 136.3 Taxes after BAPCPA.
4 See § 495.1 [ Leases and Executory Contracts after BAPCPA ] § 102.3 Leases and Executory Contracts after BAPCPA.
5 11 U.S.C. § 503(b)(9).
6 11 U.S.C. § 1304(a), discussed in §§ 57.1 [ Operating a Chapter 13 Debtor Engaged in Business ] § 52.1 Operating a Chapter 13 Debtor Engaged in Business and 57.2 [ Additional Filing and Reporting Requirements ] § 52.2 Additional Filing and Reporting Requirements.