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JoyStar Travel Agent Creditors May Get A Break

July 31, 2009 By: George Dooley

Patrick Scott, Esq., the attorney for the trustee handling claims in the JoyStar bankruptcy, issued a correction that raised the possibility that travel agents with consumer-related claims against JoyStar may have a priority ahead of the Internal Revenue Service (IRS). Agents must, however, meet the criteria that will be determined by the Court appointed trustee (for more on how to proceed, read Scott's memo "JoyStar, Inc. Response to Creditor Inquiries").

“I had written that 'the only thing that can be paid ahead of the $236,404 IRS lien is the cost of having the trustee and his counsel and accountant administer the debtor's assets for the benefit of the IRS,' " Scott said. "Actually, creditors who properly assert that their claims represent consumer deposits, employee wages and employment benefits, or sales commissions, all come ahead of the tax lien, just as they come ahead of the even larger tax priority (non-lien) claim. So they come ahead of both the secured and unsecured IRS claim. It is general creditors who fall behind the IRS in this case.”

“It is still beyond my role to advise whether any of the sub-agents qualify as 'sales commission' priority creditors under 11 U.S.C. §507(a)(4)(B)," Scott continued, "but I will quote the statute (11 U.S.C. §507(a)(4)(B)), and let creditors draw their own conclusions as to whether they qualify.

Scott quoted the statue, saying, "(4) Fourth, allowed unsecured claims, but only to the extent of $10,950 for each individual or corporation, as the case may be, earned within 180 days before the date of filing of the petition [December 31, 2008] or the date of the cessation of the debtor's business, whichever occurs first, for--(B) Sales commissions earned by an individual or by a corporation with only 1 employee, acting as an independent contractor in the sale of goods or services for the debtor in the ordinary course of the debtor's business if, and only if, during the 12 months preceding that date, at least 75% of the amount that the individual or corporation earned by acting as an independent contractor in the sale of goods or services was earned from the debtor."

Scott said any claimant should consult independent counsel. “Someday after the October 19 claim deadline, the trustee will review the claims that assert priority, determine who he believes qualifies and who he believes does not, and he will send objections to objectionable claimants," he said.

In related news, Scott reported that the total claims against bankrupt Joystar now scheduled by the debtor, include employee priority: $110,008.43; tax priority: $869,508.60; and other creditors: $1,660,943.14. Scott notes the actual claims will depend on what proofs of claim are filed by the creditors prior to the October 19th deadline.

As reported, Scott has provided JoyStar, Inc. creditors with a detailed update on the status of the now bankrupt travel company. JoyStar has left as many as 700 creditors in line for some compensation, including travel agents and some consumers.

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