Richardson Law Legal Blog

Posted By Steven J. Richardson on July 8, 2010

Police officers frisking a suspect as part of an arrest is something  with which we are all familiar.  There is even a famous picture of former New Jersey Governor Christie Whitman frisking someone.  This is for the purpose of determining whether the suspect is armed, before taking him or her into custody, and it is also referred to as a “pat down” search or a “search incident to arrest.”  However, on June 30, 2010, the New Jersey Supreme Court handed down a ruling that dealt with how far a police officer can go in a search such as this.  In effect, they said that it is called a “pat-down” search for a reason.

The court held, in the case of State v. Privott, that the fact that the police have a legitimate basis to frisk a criminal suspect for weapons does not provide the officers with the right to go further than patting him down.  In this case, they lifted the suspect’s clothing for the purpose of recovering evidence.  The court observed that,

“In assessing the scope of the search by the officer, the evidence is clear that defendant was cooperative at all times. When stopped, defendant placed his hands against a fence as instructed by the officer. A reasonable search, as well as the least intrusive maneuver needed to protect the safety of the officer against a possible weapon, would have been the traditional pat-down search of defendant’s outer clothing. That did not occur. Rather, the police officer lifted defendant’s tee-shirt to expose defendant’s stomach, and in doing so, observed a plastic bag with suspected drugs in the waistband of defendant’s pants. That maneuver exceeded the scope of the patdown search needed to protect the officer against defendant having a weapon and was akin to a generalized cursory search of defendant that is not condoned.”

In saying this, the court recognized that this kind of search is done for the safety of the officers, and not as an excuse to look for any other evidence.  So I guess when it comes to pat-down searched in New Jersey, it’s touch but don’t look!

Category: Criminal, News | No Comments »
Tags: search and seizure

Posted By Steven J. Richardson on July 6, 2010

It is not unusual for people getting divorced to be in financial straits; many times that is the basis for the fights that led to the “irreconcilable differences” that led to the divorce in the first place!  In addition, filing bankruptcy as part of a divorce strategy can also make it much easier to resolve issues of marital debt in family court.   However, if not paying your own attorney’s fees is part of the plan, tread carefully!

An article on the Bankruptcy Law Network brings to light an interesting case from a Georgia Bankruptcy Court where the wife planned to file bankruptcy from the very beginning, telling her attorney that she would pay him from 401(k) pension funds obtained in the divorce.  After she filed, seeking discharge of over $35,000 in fees, the attorney filed an objection to discharge, claiming that the debt was incurred by the debtor through “false pretenses, false representation or actual fraud” under section 523(a)(2)(A) of the bankruptcy code.  After a trial, the court agreed, and the fees were still due and owing.

This brings up the general admonition to be careful about what debt you incur once you realize that you are insolvent.  Creditors and bankruptcy trustees scrutinize the activities of debtors in the months leading up to the filing of the petition.  Was there a lot of credit card use?  What was purchased?  What is worse, bankruptcy law interprets fraud from an objective, rather than subjective, standard.  In other words, you may not have any intent to defraud creditors.  You might have every intention to pay once you get a job, get that bonus, or get that raise.  However, it is your objective ability to pay the debt at the time it is incurred, not your subjective intent, that rules here.  If this sounds like you, be sure to discuss it with your attorney as part of the bankruptcy preparation process, because if you incurred a debt that you simply could not afford, it might be denied a discharge under the section mentioned above, even absent the bad intent of the woman in that case.

Category: Bankruptcy, News | No Comments »
Tags: attorneys fees, discharge, divorce

Posted By Steven J. Richardson on July 1, 2010

Occasionally, when interviewing a client for bankruptcy, I am told, “Well, I do work for this guy, but it is under the table/off the books.”   The fraud consequences of not declaring this income on your tax return aside, this strategy is always a bad idea. What most people do not realize is that the downside to doing this exceeds the short term benefit of the tax savings.  Three good reasons come to mind.

First, what if you need Social Security benefits for retirement or a disability?  Income “on the books” is reported to the Social Security Administration, not only in the form of the FICA taxes withheld, but also your work history.  If you work for any significant period of time “off the books,” then later need to apply for retirement or disability benefits, you will be paid less than if you had reported the income because your earnings record will be deflated.

Second, what if you are injured on the job?  I consult with many clients in the construction industry.  What I tell them is that if you are not on the company books as an employee, there might be a coverage issue for New Jersey worker’s compensation insurance.  That is even if the employer has compensation coverage!  That may be the reason you are off the books in the first place!  Now you are struggling to get treatment and disability income that you might have easily received if you were “on the books.”  It can also be difficult to calculate temporary or permanent disability benefits accurately without “off the books” income information.  One example is under-reported tips by restaurant staff.  They may well end up getting less than they might while out on disability, because they can’t substantiate their true income.

Another good example of this problem is also one that is in the news.  National Public Radio reported recently that the fishing industry in the Gulf of Mexico is going to have big problems regarding the BP oil spill (other than the obvious).   The article begins by observing:

“Cash is king in the Gulf fishing industry. And many fishermen and residents say a large, if unquantifiable, amount of the Gulf Coast’s economy operates with cash. It’s a segment of the economy that, for generations, has been kept in the shadows of the Internal Revenue Service.”

Unfortunately, the spill has devastated their business, and they want to make a claim from the $20 billion compensation fund BP set up.  But how do they substantiate that claim?  How do they show that this is really their loss without the business records to back it up?

Third, what if you have to file bankruptcy?   I have had clients that have not been able to do so because they or their spouses had under the table income that would come to light through the bankruptcy petition, either by disclosed income in the petition that did not line up with tax returns or because they simply could not document it for some of the income analysis required under the code.

The bottom line: there is such a thing as being too clever for your own good.  Bite the bullet, work on the books, and pay the taxes.  You will be better off in the long run.

Category: Bankruptcy, General Legal, Library | No Comments »
Tags: Bankruptcy

Posted By Steven J. Richardson on June 29, 2010

One question I am often asked is whether people can get out from under an onerous tax burden by filing bankruptcy, either in a chapter 7 or a chapter 13.  Trust fund penalties aside for unremitted payroll tax deductions, it is possible to discharge (wipe out) income taxes under certain circumstances.  However, those circumstances are far from straightforward and should be reviewed with care by an attorney.

Until recently, if the income tax return of the debtor was due at least three years before the filing of the petition, was actually filed two years before the filing of the petition, and assessed at least 240 days before the filing of the petition, the tax was generally dischargeable.  The problem, though, is that the IRS has successfully challenged the two year prong of that rule at the trial court level.   In three cases, taxing agencies have successfully argued that a late filed return is not a “return” under the provision of the bankruptcy code dealing with the dischargeability of taxes because a late filed return does not satisfy all “applicable filing requirements” since filing on time is one such requirement.  In re Creekmore, 401 B.R. 748(Bankr.N.D.Miss.2008); Links v. U. S., 2009 WL 2966162 (Bkrtcy.N.D.Ohio); McCoy v. Mississippi State Tax Commission, 2009 WL 2835258 (Bkrtcy.S.D.Miss.).

For example, suppose you haven’t paid all of the income taxes from tax year 2005, and the return for that year was filed on or before April 15, 2006.   This would generally be dischargeable.  However, what if the return for 2005 was not filed until much later, such as January of 2008?  It would have been filed more than two years ago, but arguably not “on time.”  Here you would need to discuss this with an experienced bankruptcy attorney to see if discharging that tax is still possible.  On the other hand, if you have tax debt that fell due three years ago on a timely filed tax return, you may well be able to get out from under it by filing bankruptcy.

Category: Bankruptcy, FAQ | No Comments »
Tags: Bankruptcy, discharge, taxes

Posted By Steven J. Richardson on June 23, 2010

As I have said in many a post, and as has been my experience in my bankruptcy practice over the past 18 years, no one actually wants to file bankruptcy.  In trying to avoid it, they make all sorts of mistakes, like raiding their pensions.  However, another mistake is often the use of debt settlement agencies to negotiate deals with creditors to pay settlement amounts.  These agencies have recently come under fire, and my experiences with them, based on client feedback, have not been good.  Thus, I would admonish anyone thinking about using them to proceed with caution.

The problem with these companies is their approach to settling your debt with creditors.  Most of them tell you to stop paying on your credit cards and, instead, make a monthly payment to them.  This money amasses in their coffers and, after a significant sum of money has accumulated, less their fees, of course, they use this money to negotiate lump sum settlements with creditors.  This, however, takes about two to three years.  The big problem is that the creditors get cranky when they aren’t paid, and in that same two to three year period, lawsuits are brought, judgments are entered, wages are garnished, and bank accounts are levied upon.   When this happens, many of these companies wash their hands of the problem.  They also deduct their fees, whether or not they are successful in their negotiations with creditors!

As you can imagine, all of this does not lead to a very high success rate.  As reported on the New York Times web site on June 19, 2010,

“In the case of two debt settlement companies sued last year by New York State, the attorney general alleged that no more than 1 percent of customers gained the services promised by marketers. A Colorado investigation came to a similar conclusion.

The industry’s own figures show that clients typically fail to secure relief. In a survey of its members, the Association of Settlement Companies found that three years after enrolling, only 34 percent of customers had either completed programs or were still saving for settlements.”

One obvious question is: with these pitfalls and a low success rate, why would anyone choose to retain the services of these companies?  The answer is, misleading marketing.  This practice has drawn the attention of the federal government.  The same Times article reports:

“In April, the United States Government Accountability Office released a report drawing on undercover agents who posed as prospective customers at 20 debt settlement companies. According to the report, 17 of the 20 firms advised clients to stop paying their credit card bills. Some companies marketed their programs as if they had the imprimatur of the federal government, with one advertising itself as a “national debt relief stimulus plan.” Several claimed that 85 to 100 percent of their customers completed their programs.

“The vast majority of companies provided fraudulent and deceptive information,” said Gregory D. Kutz, managing director of forensic audits and special investigations at the G.A.O. in testimony before the Senate Commerce Committee during an April hearing.”

I am not saying that all companies are like these under investigation.  However, it does make me very skeptical of the efficacy of retaining their services if they show a 66% failure rate while debtors still end up paying for the service. My advice is this: If you are considering bankruptcy, speak with an attorney and ask him or her whether, under your circumstances, it would be a good idea to try this option before paying your hard earned money for the possibility of ending up in a worse situation.

Category: Bankruptcy, Library | No Comments »
Tags: Bankruptcy, debt settlement agencies