Trustee lawyer at lawmaker’s bankruptcy hearing says refusal to answer unusual
Idaho state Rep. Phil Hart refused to answer many questions about his finances in a meeting Friday with creditors in his bankruptcy case.
An attorney with the U.S. Department of Justice and another representing the Idaho State Tax Commission grilled Hart about his business interests, income, assets and debts during a meeting conducted by the trustee in Hart’s Chapter 13 bankruptcy filing.
Hart, a longtime tax protester who owes the IRS more than $550,000 and the state more than $50,000, said he thought many of the questions – including ones about corporations he helped set up and about the Athol house he lives in – were inappropriate or irrelevant to his bankruptcy filing. He repeatedly responded, “I decline to answer.”
Refusing to answer such questions is highly unusual in such a meeting, said Ford Elsaesser, a Sandpoint lawyer representing the trustee in the case.
Elsaesser said he has conducted around 30,000 debtor-creditor meetings. “I’ve never had a debtor decline to answer the routine questions that were asked,” he said following Friday’s session at the federal courthouse in Coeur d’Alene.
“Refusals to answer are not likely to be looked upon favorably by the bankruptcy court,” Elsaesser added.
The Chapter 13 filing may be dismissed anyway because of how much Hart now owes.
Chapter 13 of the U.S. bankruptcy code allows a person to reorganize their finances under court supervision, within certain debt limits. Hart owes more than $600,000, exceeding the limit of $360,475 in “noncontingent, liquidated, unsecured debts” under Chapter 13.
His attorney, Michael McFarland of Coeur d’Alene, described that as a technical issue. The filing will need to be converted to another type, such as a Chapter 7 or Chapter 11 bankruptcy, or be dismissed, allowing a new filing to occur, McFarland said.
Chapter 7 provides for liquidation, such as the sale of property to pay creditors. Chapter 11 usually is used by corporations or partnerships to reorganize and pay creditors over time, but businesspeople and individuals also can seek relief under it.
Hart stopped filing federal and state income tax returns in 1996 while he pressed a lawsuit claiming the federal income tax is unconstitutional. That suit failed and he began filing returns again, but authorities maintain he still hasn’t paid in full.
Hart disputes all but $7,009 of the IRS and state tax claims against him.
A Republican finishing his fourth term in the Idaho House, Hart reported in his bankruptcy filing that the IRS has garnished all his legislative pay, totaling $16,000 a year, since 2005.
His state paychecks will stop by the end of this year. Hart lost his bid for a fifth term in the May GOP primary.
He said in Friday’s meeting with creditors that he plans to devote more time to his profession as a civil engineer and believes he can replace his legislative pay with that business income.
In his bankruptcy filing, Hart proposed paying $200 a month for five years – a total of $12,000 – to satisfy all his debts.
Hart also is the target of a Department of Justice lawsuit seeking to foreclose on his Athol home to settle his IRS debt. That case was automatically stayed by his bankruptcy filing.
The home is held by a trust Hart set up in the name of his daughter, but the IRS called that a “fraudulent” transaction and a “sham entity.”
Hart admitted paying $600 a month to the trust to live there, but when pressed by creditors Friday to reveal more about the arrangement, he declined to answer, saying the attorney representing the trust should be present for such questions.
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