U.S. Government Asks Judge to Liquidate LifeCare Hospital Chain over Tax Payments

by San Antonio Attorney

U.S. Government Asks Judge to Liquidate LifeCare Hospital Chain over Tax Payments

U.S. government files a motion in court stating that it liquidating a chain of 27 hospitals is better than to sell it off as a continuing business.

Based on the court papers filed, the Internal Revenue Service asked the judge to prevent the sale since it would cause a big capital gains tax and drop Texas-based LCI Holding Company Inc without money to pay creditors.

The company filed for bankruptcy in December with $484 million in debt. LCI hired the Rothschild investment bank to liquidate its assets and lenders were the sole bidders for the hospitals located in 10 states with around 1,400 beds.

The lender which LCI owed $353 million plans to exchange most of the amount owed and accepting some responsibilities of LifeCare for ownership.

The sale plan will be considered by Delaware Bankruptcy Court Judge Kevin Gross on Tuesday.

The IRS asserted that the agreement will generate a capital gains tax that LCI’s lawyers said could be around $24 million. According to the IRS, since the lenders are using the debt as a currency to bid, the chain of hospitals will lack the necessary funds to cover its taxes.

LCI will only owe the taxes if the judge approves the sale plan and it closes.

The tax that the IRS will claim is the administrative expense, a high priority claim that also consists of legal fees and certain vendor payments.

If it is not paid, the bankruptcy must be converted to a liquidation bankruptcy. The government agency said it will file a motion to dismiss LCI’s bankruptcy.

In court papers filed by LCI, it slammed the IRS for arguing a Chapter 7 liquidation.


–          The bankruptcy court can order you to convert your Chapter 13 case to Chapter 7 “for cause.” If you are considering filing for Chapter 13 bankruptcy, make sure you consult a San Antonio Bankruptcy attorney to find out if you are qualified to file.

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