Contact:
800 Fifth Avenue, Suite 2000
Seattle, WA 98104
E-mail
The Bankruptcy and Collections Unit (BCU) is comprised of 4 attorneys and 6 professional staff. The unit encourages voluntary compliance with the state’s tax laws by supporting the efforts of state agencies to aggressively pursue money owed to the state. Most of the money is owed for delinquent sales and business and occupation taxes, industrial insurance premiums and unemployment fund contributions. The BCU gives priority to representing the departments of Revenue, Labor & Industries and Employment Security in bankruptcy cases.
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The BCU’s principal legal activity involves representing the state tax agencies in federal bankruptcy courts nationwide. The BCU also files a significant number of collection actions against the bonds of contractors who are delinquent in tax payments. The BCU appears in superior court to defend the priority of state liens and to assert claims against funds retained by government entities under public works contracts. The BCU also devotes substantial resources to training tax agency personnel who handle bankruptcy and collections claims.
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The BCU has handled a total of 15,186 bankruptcy and collection cases on behalf of the state since the unit was created in 1993, collecting more than $125.7 million, including $85.5 million in payments made, $12.4 million in claims successfully defended and $27.8 million in future payments to be made to the state under court orders. As of October 2006, the BCU had 467 active cases with more than $10 million in pending agency claims.
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Taxation of Bankruptcy Sales: Historically, bankruptcy courts exempted from taxation all property sold in a bankruptcy. The BCU was the first public attorney office to oppose the exemption and worked with NAAG and the States’ Association of Bankruptcy Attorneys to alert other public attorneys to the issue. The BCU successfully argued in numerous jurisdictions that the tax exemption granted by the Bankruptcy Code to sales in a bankruptcy is a limited one and collected millions of dollars for Washington. In State of Florida v. Piccadilly Cafeterias, Inc., the United States Supreme Court reversed the Eleventh Circuit Court of Appeals and issued an opinion in support of the BCU’s position that sales prior to confirmation are subject to taxation. The BCU reviewed the briefs that Florida and amicus NAAG filed and assisted in the moot courts.
Contractor Bond Cases: Contractors who do business in this state must obtain a surety bond or open an assigned savings account to protect the homeowner. The state tax agencies can collect unpaid taxes against a portion of this bond by filing a lawsuit against the surety company or the contractor’s bank account. The BCU opened 873 contractor bond files during this period and recovered $2,434,406.87.
Kimberly Columbo: The debtor filed for bankruptcy in 2004 and ultimately recovered insurance proceeds of $193,272 after her restaurant was burned down by her brother. The bankruptcy was dismissed in 2008 because the debts exceeded the jurisdictional limit, but the judge ordered that the funds be placed in an attorney’s trust account until ownership could be determined. When Revenue asserted its claim against the funds, a third party, Sean Sanborn, claimed a first lien right to the proceeds based on his management contract, a UCC filing, and finally a court judgment against Ms. Columbo. The BCU checked with Revenue, determined that Mr. Sanborn owed a substantial tax debt in his own right, and instructed Revenue to garnish the attorney’s trust account asserting a claim against any funds payable to Ms. Columbo or Mr. Sanborn. After extensive negotiations, Revenue was paid $17,140.09 on Ms. Columbo’s debt and $73,890.88 on Mr. Sanborn’s debt, satisfying both obligations.
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The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), which substantially amended the Bankruptcy Code, went into effect on October 17, 2005. The BCU worked with the tax agencies and DSHS to educate the agencies on the impact of BAPCPA and to revise state bankruptcy procedures as necessary.
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