The Braswell Problem

      The Fifth Amendment is the most powerful protection that we have in the Freedom Movement.  It is the Fifth that protects individuals who receive summonses from the IRS for their books and records.  Many individuals however have weakened their positions by setting their businesses up in corporations and trusts.  The courts have ruled that the Fifth Amendment cannot be taken regarding books and records except in the case of a sole-proprietor.  Once a business has been set-up in the form of a corporation, partnership or trust, the protection of the Fifth Amendment is greatly weakened. The Supreme Court has ruled in Braswell v. United States, 487 U.S. 99 (1988) that a custodian of records cannot rely on the Fifth Amendment.  The following is a quote from a court case in which the IRS was enforcing a summons:

      "The issue is whether Respondent properly invoked his Fifth Amendment privilege against self-incrimination in refusing to testify or produce any records to the IRS.

      This matter is controlled by Braswell v. United States, 487 U.S. 99 (1988).  Evidence presented at the evidentiary hearing conducted in this matter on May 5. 1997 with one exception, established that Respondent's financial affairs are conducted through closely-held corporations, which he controls.  The respondent pro se admitted such in open court, while contending that one asset was held in trust.  The "collective entity doctrine" espoused by the Supreme Court in the context of a grand jury subpoena holds that a custodian of corporate records may not interpose a Fifth Amendment objection to the compelled production of corporate records, even though the act of   production may prove personally incriminating, Braswell v. United States, supra  at 111-112.  This concept is controlling whether the entity at issue is a corporation or a trust."

      The moral of this story is that if you are conducting your affairs as a sole-proprietor, you have access to the Fifth Amendment if the IRS gives you a summons.  If you have set up a trust to run your business, you do not have the protection of the Fifth Amendment.  So, be careful.

Chapter 7 Bankruptcy

            The filing of a bankruptcy petition starts a Chapter 7 Bankruptcy.  The petition itself is filed on Official Bankruptcy form No. 1.  Bankruptcy Rule 1002(b)(1) requires that an original and one copy of the petition should be filed. Local Rules may vary.  Be sure to ask your court for a copy of the local rules and please follow them.  The filing fee for a Chapter 7 is currently $160.00 and must be paid at the time the Chapter 7 is filed; but it can be paid in installments.  Official Bankruptcy Form No. 2 is an application to pay in installments.  The filing fee must be paid in full before a debtor may pay an attorney for services with the case.

            The debtor must file a list with the petition of the names and address of the creditors.  There must also be a schedule of liabilities.  Any paperwork that is not filed with the petition must generally be filed within two weeks after the filing of the petition.  A schedule of assets, statement of financial affairs, statement of executory contracts, and a schedule of current income and current expenditures are also required.  Official Bankruptcy Form No. 6 deals with assets and liabilities, and Official Bankruptcy Form No. 7 cover the debtor's financial affairs.

            The best book for pro se litigants who wish to declare Chapter 7 Bankruptcy is:  How to file for Bankruptcy by Stephen Elias  published by Nolo Press; 950 Parker Street, Berkeley, CA 94710;  (800) 992-6656.

            Be sure to list all your debts, if you fail to list a debt, it might be excepted from the discharge.  If you omit assets, you may lose the entire discharge.  You will have to list all your assets and liabilities on Official Bankruptcy Form No. 6.  Your statement of Financial Affairs is on Official Bankruptcy Form No. 7.

            After you have filed your bankruptcy; you will have to submit to an examination of the creditors and the trustee at a meeting of creditors.  Your testimony will be made under oath.  The creditors must file objections to the debtor's claim of exemption within 30 days after the meeting.

            When you file Bankruptcy, creditors may not seek relief against you without permission of the Court.  That means that all liens and levies must stop.

            You can keep certain kinds of property.  Each state has a list of exemptions and there are Federal Exemptions as well.  In some states, you are required to use the state exemptions.  Please check the Nolo Press book to find out the situation in your state.

            Creditors may have secured and unsecured claims.  For example a car is a secured claim.  You will still have to pay off the loan to keep the car, but the Trustee will revalue the car. Your credit card bills, however, are generally unsecured and can be erased by the bankruptcy.  Income taxes are a special case; they can be discharged but special procedures must be followed.  If you wish to discharge an income tax in a Chapter 7, it must be three years old and returns must have been filed for at least two years. The IRS must have had at least 240 days after the date of assessment of collect the debt and there must not be any fraud involved.

            Bankruptcy law is favorable to the petitioner.  If there is no complaint objecting to the discharge, it will be entered by the court without a problem.

            If you file a Chapter 7 and decide later that a Chapter 11 or Chapter 13 is better, you may convert to those other chapters.  A Chapter 7 may be dismissed by the Court for cause.  If there is unreasonable delay by the debtor, the case may be dismissed.  If the debtor has failed to pay certain fees or charges, the Court may dismiss the case.  The Court may also determine that a discharge would be a "substantial abuse" of the provisions of Chapter 7.

            It is very important in a Bankruptcy to be very accurate in your paperwork.  Also, you must investigate the kind of debts you have and determine whether they are priority and (or) secured claims.  Don't be scared of bankruptcy, it is actually easier than filling out a tax return.  Good luck, and be sure to order the book by Nolo Press if you wish to file bankruptcy as a pro se.