Case No. 02-31467United States Bankruptcy Court, W.D. North Carolina, Charlotte Division
August 23, 2002
ORDER DENYING MOTION FOR SANCTIONS
J. CRAIG WHITLEY, United States Bankruptcy Judge
This matter came before the Court for hearing on August 15, 2002, upon the Debtor’s Motion for Sanctions and Return of Property, the United States of America’s response thereto, and the Debtor’s Motion to Oppose United States of America’s Response to Motion for Sanctions and Return of Property. The Debtor appeared pro se, and James Sullivan appeared on behalf of the United States of America.
Based upon the facts presented and the record, this Court finds:
1. The Debtor filed a Chapter 13 case with this Court on May 9, 2002, which was subsequently converted to a Chapter 7.
2. In the Debtor’s Motion for Sanctions and Return of Property, he alleges that the Internal Revenue Service (“IRS”) and the North Carolina Department of Revenue (“NCDOR”) have been levying his wages in violation of the automatic stay of 11 U.S.C. § 362. In his prayer for relief, the Debtor asks the Court to: (1) enjoin the IRS and NCDOR from “willful violation of the Automatic Stay”, (2) order the IRS and NCDOR to return the levied wages, (3) and terminate the wage levies.
3. The Debtor did not properly serve his Motion for Sanctions and Return of Property on the NCDOR, as he did not serve the North Carolina Attorney General . . . Accordingly, the August 15, 2002, hearing is continued with respect to the NCDOR until September 12, 2002, to allow the Debtor an. opportunity to serve the North Carolina Attorney General.
4. As for the Debtor’s allegations against the IRS, at the time the Debtor filed his bankruptcy petition, his wages were subject to an outstanding levy by the IRS for failure to pay any income tax since 1994. Pursuant to its levy, the IRS received payments from the Debtor totaling $4,028.37 between May 14, 2002, and June 10, 2002.
5. On May 9, 2002, the Debtor served a copy of his petition on the IRS at the local IRS office in Charlotte, North Carolina. However, the Debtor failed to serve notice on the IRS Insolvency Unit in Greensboro, North Carolina, and the Insolvency Unit did not learn of the Debtor’s bankruptcy until May 31, 2002.
6. Despite receiving notification of the Debtor’s bankruptcy, the IRS continued levying the Debtor’s wages until June 10, 2002, due to an internal computer error.
7. As soon as the IRS realized that the Debtor’s wages had been levied in violation of the automatic stay it took appropriate steps to rectify the situation. Specifically, the IRS released the wage levy and forwarded a partial refund to the Debtor. The remaining refund was being mailed to the Debtor at the time of the August 15, 2002, hearing.
8. Despite its technical violation of the automatic stay, the equities in this case weigh against sanctioning the IRS. The violation appears to be an isolated error, not a willful violation of the stay. Additionally, by his testimony, the Debtor has not suffered any damages as a result of the IRS’ stay violation.
9. Moreover, the Debtor, a tax protester, has not filed an income tax return since 1994, and his failure to do so is the basis for his bankruptcy filing. Because the Debtor has not filed an income tax return since 1994, his tax liabilities will not be discharged in this bankruptcy proceeding. See 11 U.S.C. § 523(a)(1)(3)(i). The Debtor’s willful failure to file may result in dismissal of his bankruptcy case, although no motion is pending. Upon dismissal, or closing of this case, the IRS will, in all likelihood, promptly reimpose the wage levy.
It is therefore ORDERED that:
1. The Debtor’s Motion for Sanctions and Return of Property with respect to the NCDOR is continued until September 12, 2002.
2. The Debtor’s Motion for Sanctions and Return of Property with respect to the IRS is denied.
3. The IRS is to refund to the Debtor the remaining wages that were levied in violation of the automatic stay. If the Debtor receives this refund before September 12, 2002, this matter will be considered resolved. If the Debtor does not receive this money before September 12, 2002, the IRS and the Debtor are to appear at the September 12, 2002, continued hearing.