BOISE - Outgoing Idaho state Rep. Phil Hart has filed a Chapter 13 bankruptcy plan in federal court that proposes that he pay $200 a month for five years - a total of $12,000 - to get his entire debt of more than $600,000 discharged.
The vast majority of that debt is back federal income taxes, penalties and interest owed to the Internal Revenue Service; it also includes more than $50,000 in back state income taxes, penalties and interest owed to the Idaho State Tax Commission, along with $22,000 in credit card debt.
“Debtor will pay to the trustee for a term, not exceeding 60 months, the sum of $200 monthly,” the plan says. No other payments are proposed, though Hart does report that he anticipates income tax refunds over the next five years, and agrees to turn those over as well.
A Spokane bankruptcy attorney with expertise in Chapter 13 cases said it’s “unlikely” that such a plan would be approved. “Generally, you don’t get to discharge your tax debts,” said David Gardner, an attorney with Winston and Cashatt.
Gardner said the plan likely will draw objections from both the bankruptcy trustee and the creditors - including the IRS - when it comes up for a hearing in August. “For that amount of cash, I would expect the IRS to be very involved,” he said.
Hart, a tax protester and four-term state lawmaker who lost his bid for a fifth term in the May GOP primary, also is the target of a federal lawsuit from the U.S. Department of Justice seeking to foreclose on his Athol, Idaho home to settle his IRS tax debt; that case was automatically stayed by his bankruptcy filing.
He also revealed last month in a bankruptcy court filing that for the past seven years, the IRS has been garnishing 100 percent of his state salary as a lawmaker, $16,116 a year.
Hart stopped filing both federal and state income tax returns in 1996 while he pressed an unsuccessful lawsuit claiming the federal income tax is unconstitutional; he also charges that the state income tax is unconstitutional. After his lawsuit failed he began filing again, but authorities maintain he still hasn’t fully paid up.
Hart last year lost his seat on the Idaho House tax committee amid an ethics investigation.
The lawmaker acknowledges in his bankruptcy case that the state and federal government have nearly $600,000 in claims against him, but says he disputes all but $7,009 of those claims.
Gardner said Congress opened the door to Chapter 13 payment plans like Hart is proposing with amendments to bankruptcy laws in 2005 that now are drawing some “pushback” from courts and bankruptcy trustees.
“The Chapter 13 rules are a little bit in flux because of the 2005 amendments to the bankruptcy code, and the argument that debtors have is nowadays, a debtor is only required to contribute all of his ‘disposable income’ to a plan, and he gets his discharge,” Gardner said. “There is no sort of overarching fairness standard.”
That’s enabled people who formerly had very high incomes, like failed real estate investors, to pay off large debts cheaply because their income has fallen so much that they can show they’re spending all they have coming in. “I think it is wielded much more in the debtor’s favor than maybe Congress anticipated,” Gardner said.
He said when a person tries to use such a filing in “a clear attempt to get out from under one creditor cheaply … then you might kind of see a general bad faith allegation.”
Hart claims in his bankruptcy that he has no assets other than an old pickup that needs work, household goods and office equipment, $1,210 in checking accounts, and a state retirement account worth $11,826.
He says he owns no real estate; his home is held by a trust he set up in the name of his daughter, but the IRS, in its foreclosure lawsuit, called that a “fraudulent” transaction and a “sham entity.”
Gardner said, “The veracity of that is always a key in these cases. … Whether a debtor has actual accessibility to assets becomes a big issue.”