Kevin R. Anderson (4786) Jocelyn J. Rick (9508) Kellie K. Nielsen (11416) Tami Gadd-Willardson (12517) OFFICE CHAPTER 13 TRUSTEE 405 So. Main Street, Suite 600 Salt Lake City, Utah84111 Telephone: (801) 596-2884 Facsimile: (801) 596-2898 Email: [email protected]

IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF UTAH CENTRAL DIVISION

In re: Case No. 11-XXXX PAUL XXXXXXXXX Chapter 13 ELAINE XXXXXXXXXX Judge William T. Thurman Debtors. TRUSTEE’S REPLY MEMORANDUM REGARDING 11 U.S.C. § 521(a)(1)(B)(iv) AND THE FILING OF PAYMENT ADVICES BY SELF-EMPLOYED INDIVIDUALS

FACTS

On July 14, 2011, the Debtors filed pro sea Chapter 13 petition for relief. Pursuant to §

521(a)(1)(B)(iv), the Debtors were required to file with the bankruptcy court “copies of all payment advices or other evidence of payment received within 60 days before the date of the filing of the petition, by the debtor from any employer of the debtor.” Section § 521(i)(1) further provides:

[I]f an individual debtor in a voluntary case under chapter 7 or 13 fails to file all of the information required under subsection (a)(1) within 45 days after the date of the filing of the petition, the case shall be automatically dismissed effective on the 46th day after the date of the filing of the petition.

The 60th day before the petition date was May 15, 2011, and the 46th day after the petition date was August 29, 2011.

Debtor Paul xxxxxxxxxxxxx is a W4 employee with Discover Financial Services, but he also receives income of approximately $750 per month from Newspaper Agency Company LLC (NAC) as a newspaper carrier. On July 29, 2011, the Debtor timely filed all required payment advices for Discover Financial Services; however, he only filed payment advices from NAC with the following dates: June 12, 2011; July 10, 2011; and July 24, 2011.

On August 25, 2011, the Trustee filed an objection to confirmation and specifically raised the issue of missing payment advices for NAC for the period of May 15, 2011; May 29, 2011; and June 26, 2011.

On August 31, 2011, (more than 46 days after the petition date), the Debtors filed pro se a response to the Trustee’s objection that included the following assertion: “It is further noted that, as evidenced in the following attached correspondence from NAC that newspaper carriers are independent contracts are not heretofore considered employees.”The Debtors attached to their response a copy from the NAC web site which states as follows: “Newspaper carriers are seven days per week independent contractors and are not employees of The Salt Lake Tribute,

Deseret Morning News, or Newspaper Agency Corporation.” Mr. XXXXXXX has further represented he started delivering newspapers for NAC on May 16, 2011. It appears that the Mr.

XXXXXXX receives bi-weekly checks from NAC (26 checks per year) in amounts based on the number of newspapers delivered and the number of paid-for subscriptions and not on the number of hours worked. Based on these arguments, the Debtors asserted that they were in compliance with the requirement § 521 to file all payment advices “received . . . by the debtor from any employer of the debtor.”

Assuming Mr. XXXXXXX was required under § 521(a)(1)(B)(iv) to file with the court payment advices from NAC, the following chart summarizes the payment advices filed and the payment advices required:

Pay Dates on Debtor Pay Checks filed Comments Dates with Court 5/29/11 5/29/11 Debtor’s first check from NAC. Filed on 8/31/11 (more

2 than 45 days after petition date). 6/12/11 6/12/11 Filed 7/29/11 (within 45 days of petition date). 6/26/11 Never filed. 7/10/11 7/10/11 Filed 7/29/11 (within 45 days of petition date). Filed 7/29/11 (within 45 days of petition date). This is a 7/24/11 7/24/11 postpetition check.

While Mr. XXXXXXX timely filed the last check received before the petition date (the

7/10/11 check), the NAC checks do not include year-to-date information. Therefore, Mr.

XXXXXXX cannot argue under In re Miller, 383 B.R. 767 (10th Cir. BAP 2008) that the “book- end” NAC check contained “other evidence of payment” sufficient to satisfy § 521.

MEMORANDUM

The issue to be decided by the court is whether § 521required Mr. XXXXXXX to file all checks received from NAC even if heis self-employed as a newspaper carrier.

Section § 521(a)(1)(B)(iv) requires Chapter 13 debtors to file with the court “copies of all payment advices or other evidence of payment received within 60 days before the date of the filing of the petition, by the debtor from any employer of the debtor” (emphasis added). The highlighted language appears to limit the application of § 521 to debtors who receive wages from an employer versus debtors who are self-employed. As noted by Judge Keith Lundin, “It is arguable that a self-employed debtor does not have an ‘employer of the debtor’ for purposes of §

521(a)(1)(B)(iv).”Lundin, CHAPTER 13 BANKRUPTCY, 4th Edition, § 376.1, at ¶ 4, Sec. Rev. July

14, 2007, www.Ch13online.com. Therefore, the first question is whether Mr. XXXXXXX is

“self-employed” as a newspaper carrier for NAR.

The Debtors have provided statements from NAC asserting that newspaper carriers are

“independent contractors and are not employees . . . of NAR.”See Exhibit C to Debtor’s memorandum, Docket No. 46-1 at page 30. After researching the issue, the Trustee concurs that

3 the Mr. XXXXXXX is a self-employed newspaper carrier. The stated position of the Internal

Revenue Service is that newspaper carriers are “self-employed” and “nonemployees”:

Persons engaged in the trade or business of delivering or distributing newspapers or shopping news (including any services directly related to such delivery or distribution), where substantially all of the pay for these services directly relates to sales or other output rather than to the number of hours worked, and the person performs the delivery services under a written contract between the person and the service recipient that states that the person will not be treated as an employee for federal tax purposes, are considered by statute as nonemployees and are treated as self-employed regardless of age for all Federal tax purposes, including income and employment taxes.  [The] employer should complete the Nonemployee compensation Box 7 on Form 1099-MISC (PDF), Miscellaneous Income.  Self-employed persons report their income on Form 1040, Schedule C, Profit or Loss from Business (Sole Proprietorship), or the person may qualify to use Form 1040, Schedule C-EZ, Net Profit from Business.  See Form 1040, Schedule SE, Self-Employment Tax, which must be filed if net earnings from self-employment are $400 or more.

Seehttp://www.irs.gov/faqs/faq/0,,id=199742,00.html (emphasis added). The IRS “Tax

Guide for Small Business” (Publication 334) states the following regarding income receivedas a newspaper carrier:

Newspaper carrier or distributor. You are a direct seller and your earnings are reported on Schedule C or C-EZ if all the following conditions apply.  You are in the business of delivering or distributing newspapers or shopping news (including directly related services such as soliciting customers and collecting receipts).  Substantially all your pay for these services directly relates to your sales or other output rather than to the number of hours you work.  You perform the services under a written contract that says you will not be treated as an employee for federal tax purposes. This rule applies whether or not you hire others to help you make deliveries. It also applies whether you buy the papers from the publisher or are paid based on the number of papers you deliver.

Therefore, the Trustee agrees that Mr. XXXXXXX is “self-employed”as a newspaper carrier and that he receives Form 1099 income from NAC.

4 The Trustee has further researched the issue as to whether Form 1099 debtors must file with the bankruptcy court payment advices received in connection such self-employment activities. The only case suggesting thatself-employment checks must be filed is In re Reyes, 05-

80225, 2006 WL 4847230 (Bankr. D. Utah February 21, 2006) where in a footnote the Court stated:

Although Mr. Reyes lists his income as “1099 Wages” on Schedule I and refers to himself as a “1099 contractor” for his father’s trucking business in the Response, there is no allegation that Mr. Reyes did not receive payment advices “from any employer” within the 60 days prior to the case being filed.

Id. at *1 n. 1.

However, the other cases addressing the issue hold or suggest that a self-employed debtor is not required by § 521 to file payment advices for self-employment income. In In re Taylor,

No. A09-63120-PWB, 2009 WL 6499346, (Bankr. N.D. Ga. Mar. 25, 2009) the Chapter 13 trustee objected to confirmation on the grounds that the debtor had allegedly not filed all payment advices required by§ 521(a)(1)(B)(iv). While the bankruptcy court ordered an evidentiary hearing to determine if the debtor was indeed self-employed, the court chided the trustee for failing to cite the entirety of § 521:

The Court makes two observations regarding accuracy and disclosure. Nowhere in the Movant’s motion is there a statement that the Debtor’s schedules reflect that she is self-employed. In the interest of full disclosure to the Court, such a statement would be appropriate. Similarly, full disclosure is appropriate in the Chapter 13 Trustee’s objection to confirmation. The objection that “Debtor has not filed copies of all payment advices or other evidence of payments received within sixty (60) days before the date of the filing of the petition as required by 11 U.S.C. § 521(a)(1)(B)(iv) and Rule 1007(b)(1)(E) F.R.Bankr.P.”is not an accurate statement of the law since it omits reference to the “received ... by the debtor from any employer of the debtor” requirement.

Id. at *2 (emphasis added). The court went on to opine: “To the extent that the Debtor was exclusively self-employed for the 60 days preceding the bankruptcy filing, the pay advice requirement would appear to be inapplicable.”)See also In re Ferro, No. 09-80415-G3-13, 2009

5 WL 4602042, at *2 (Bankr. S.D. Tex. Dec. 3, 2009) (Self-employed debtor “is in technical compliance with § 521(a)(1)(B)(iv) because he has not received payment advices.”).

With the passage of BAPCPA in 2005, and based on Judge Lundin’s comment as to whether self-employed Chapter 13 debtors are required to file payment advices,1 the Utah

Chapter 13 trustees recognized the potential for confusion and the possibility that a self- employed Chapter 13 debtor could avoid the full disclosure of prepetition income. To address this concern, the trustees sought for the enactment of a local rule to clarify that self-employed debtors had similar requirements to report income received within 60 days of the petition date.

Subsequently, the Court enacted Local Rule 2083-1(C) and (D) that requires a debtor to provide the trustee at or before the meeting of creditors the following information regarding self- employment income:

(C) A profit and loss statement if a debtor had self-employment income for the 60 days prior to filing, including income reported on an IRS Form 1099; and (D) A business questionnaire for each business operated by the debtor 60 days prior to filing.

The Chapter 13 trustee vigorously enforces this Local Rule and believes that it provides appropriate verification of a debtor’s self-employment income—especially when the trustee’s office compares it with other financial information provided by debtors including tax returns, bank account statements, and business budgets attached to Schedule J. Furthermore, the trustee’s office regularly requests self-employed debtors to provide additional documentation regarding their business activities and whether associated expenses are actual, reasonable, and necessary.

In this case, the pro se Debtors did not provide the required profit and loss statement and business questionnaire at their 341 Meeting on August 19, 2011; however, they subsequently retained counsel who assisted them in providing these documents to the Trustee on September

21, 2011. The Trustee has reviewed the profit and loss statements and business questionnaire

1“It is arguable that a self-employed debtor does not have an ‘employer of the debtor’ for purposes of § 521(a)(1)(B) (iv).” Lundin, CHAPTER 13 BANKRUPTCY, 4th Edition, § 376.1, at ¶ 4, Sec. Rev. July 14, 2007.

6 regarding the Debtor’s self-employment as a newspaper carrier and has found them to be complete, accurate, and with no questionable expenses.

Therefore, based on the specific facts of this case, the Trustee believes that Mr.

XXXXXXX is a self-employed newspaper carrier who receives 1099-income from NAC.

Furthermore, the Debtors’ argument that § 521 does not require the filing of Form 1099 payment advices appears supported by reasonable case law. Finally, the Court has enacted, and the

Trustee enforces, a procedure to provide for the full disclosure and review of self-employment income and expenses to ensure that debtors are contributing all of their projected disposable income to the repayment of creditors.

DATED: April 5, 2018.

/s/ Kevin R. Anderson Attorney for Chapter 13 Trustee

CERTIFICATE OF SERVICE A true and correct copy of the foregoing paper was served on the following person onApril 5, 2018 SARAH L. MATHEWS ECF Notification

/s/

Office of the Chapter 13 Trustee

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