Bankruptcy Plan Cannot Change Creditor Priorities Set by Statute

Bankruptcy Plan Cannot Change Creditor Priorities Set by Statute

Description Appeals court reversed bankruptcy court decision on Chapter 11 reorganization plan that gave higher priority status to one tax claim over another. Courts cannot weaken the statutory priority rights established by Congress in the bankruptcy code.

Topic Bankruptcy

Key Words Priority

C A S E S U M M A R Y

Facts Haas owed the IRS $617,000 for income taxes and $68,000 for employment taxes at the time Chapter 11 bankruptcy was filed. The reorganization plan approved by the bankruptcy court classified the employment tax liability as a secured claim to be paid in full, and the income tax liability as an unsecured claim. The IRS appealed this classification.

Decision Reversed. The plan improperly changes the priorities of claims against available assets. By treating the employment "tax debt as a secured claim, rather than as a priority unsecured claim, the plan reduces the recovery by the IRS by $68,000. By ignoring the priority status of the [employment] tax claim the plan has, in effect, adjusted the priority of the claim, and this it cannot do."

Citation In Re: Haas, 162 F.3d 1087 (11th Cir., 1998)

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Bankruptcy Plan Cannot Change Creditor Priorities Set by Statute
Description	Appeals court reversed bankruptcy court decision on Chapter 11 reorganization plan that gave higher priority status to one tax claim over another. Courts cannot weaken the statutory priority rights established by Congress in the bankruptcy code.
Topic	Bankruptcy
Key Words	Priority
C A S E S U M M A R Y
Facts	Haas owed the IRS $617,000 for income taxes and $68,000 for employment taxes at the time Chapter 11 bankruptcy was filed. The reorganization plan approved by the bankruptcy court classified the employment tax liability as a secured claim to be paid in full, and the income tax liability as an unsecured claim. The IRS appealed this classification.
Decision	Reversed. The plan improperly changes the priorities of claims against available assets. By treating the employment "tax debt as a secured claim, rather than as a priority unsecured claim, the plan reduces the recovery by the IRS by $68,000. By ignoring the priority status of the [employment] tax claim the plan has, in effect, adjusted the priority of the claim, and this it cannot do."
Citation	In Re: Haas, 162 F.3d 1087 (11th Cir., 1998)