§ 52.2 — Additional Filing and Reporting Requirements
Revised: April 30, 2004
Section 1304(c) imposes on a Chapter 13 debtor engaged in business the additional duty to file with taxing authorities, the court and the U.S. trustee periodic reports and summaries of the operation of the debtor’s business as described in 11 U.S.C. § 704(8).1 If the debtor has employees, the withholding and FICA reports and deposits required by the IRS must be maintained during the Chapter 13 case.
Bankruptcy Rule 2015(c) also applies to Chapter 13 debtors engaged in business and requires the debtor to
(2) keep a record of receipts and the disposition of money and property received; (3) file the reports and summaries required by § 704(8) of the Code which shall include a statement, if payments are made to employees, of the amounts of deductions for all taxes required to be withheld or paid for and in behalf of employees and the place where these amounts are deposited; (4) as soon as possible after the commencement of the case, give notice of the case to every entity known to be holding money or property subject to withdrawal or order of the debtor, including every bank, savings or building and loan association, public utility company, and landlord with whom the debtor has a deposit, and to every insurance company which has issued a policy having a cash surrender value payable to the debtor, except that notice need not be given to any entity who has knowledge or has previously been notified of the case.2
In addition, Bankruptcy Rule 2015(c) states, “[I]f the court directs, [the debtor engaged in business] shall file and transmit to the United States trustee a complete inventory of the property of the debtor within the time fixed by the court.”3
In a business case, the Chapter 13 trustee is required by § 1302(c) of the Code to “investigate the acts, conduct, assets, liabilities and financial condition of the debtor, the operation of the debtor’s business and the desirability of the continuation of such business,” and to then “file a statement of any investigation conducted . . . , including any fact ascertained pertaining to fraud, dishonesty, incompetence, misconduct, mismanagement or irregularity in the management of the affairs of the debtor.”4 To satisfy these investigative and reporting responsibilities, the standing trustee typically meets with every Chapter 13 debtor engaged in business prior to the meeting of creditors. In most districts, there is a letter to debtor’s counsel from the standing trustee directing the debtor to bring a long list of documents and business records. The Handbook for Standing Trustees prepared by the Executive Office for the United States Trustee suggests that debtors engaged in business should supply the following information to the standing trustee:
Copies of federal and state tax returns, along with all supporting schedules, for at least the two years preceding the filing;
Copies of financial statements furnished to a third party such as a trade creditor or a bank within the two years preceding the filing of the petition, including, but not limited to, the balance sheet, income statement and cash flow statement;
Current books and records of the business, including checks and check registers;
Monthly profit and loss statements for at least the year preceding the filing;
Current schedule of accounts receivable and accounts payable;
Current insurance policies.
This list exceeds the abilities of most Chapter 13 debtors. Many of these documents won’t exist and can’t be easily constructed by the typical Chapter 13 debtor engaged in business. But if debtor’s counsel knows what to expect, at least the debtor can provide the documents that do exist and some of the deficiencies may be correctable with a little help.
After the initial meeting, the standing trustee will prepare and file a statement of the investigation. Based on the investigation, the standing trustee will determine what level of continued monitoring is appropriate given the nature of the business and the business expertise of the debtor. Monitoring by the trustee may include visits to the debtor’s business, meetings with other professionals who might help the debtor with such things as accounting or budgeting, and a specific schedule for the debtor to file other reports and disclosures during the Chapter 13 case.
Most Chapter 13 trustees have forms for the operating reports and other periodic reports expected from a Chapter 13 debtor engaged in business. Keeping up with the reporting requirements will require most debtors engaged in business to rise to a new level of responsibility. The standing Chapter 13 trustee and, indirectly, the U.S. trustee are watching business debtors during the preconfirmation period for signs of improved responsibility and performance. Business debtors who fail to file reports can expect time-consuming motions for conversion or dismissal.5
1 11 U.S.C. § 704(8) provides:
[I]f the business of the debtor is authorized to be operated, file with the court, with the United States trustee, and with any governmental unit charged with responsibility for collection or determination of any tax arising out of such operation, periodic reports and summaries of the operation of such business, including a statement of receipts and disbursements, and such other information as the United States trustee or the court requires; . . .See Dayton Area Sav. & Loan Cmty. Redevelopment Corp. v. Foreman, 32 B.R. 264 (Bankr. S.D. Ohio 1983) (Debtor engaged in business of renting an apartment building must perform tax-reporting duty imposed by § 1304(c).).
2 Fed. R. Bankr. P. 2015(c)(1) (incorporating Fed. R. Bankr. P. 2015(a)(2)–(4)).
3 Fed. R. Bankr. P. 2015(c)(1).
4 11 U.S.C. §§ 1106(a)(3), 1106(a)(4), cross-referenced in 11 U.S.C. § 1302(c).
5 See In re Nimmo, 39 B.R. 5 (Bankr. D.N.M. 1984) (Failure of Chapter 13 business debtor to file operating reports is not alone ground for dismissal.); In re Kelsey, 6 B.R. 114 (Bankr. S.D. Tex. 1980) (Failure of business debtor to file § 704(8) tax reports is not alone sufficient to justify conversion.); In re Elkin, 5 B.R. 21 (Bankr. S.D. Cal. 1980) (Failure of business debtor to file periodic reports may be ground for conversion or dismissal.).