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13Feb, 17

On Jan. 31, without any prior notice, the Independent Adoption Center notified all families waiting with them that the company was filing for bankruptcy. The national adoption agency was licensed in eight states and had been placing babies for 34 years.

A press release from IAC states:

“We want to express our gratitude to everyone who has helped build families through IAC over the last 35 years. We understand that this is an incredibly emotional time for all concerned. All of our board are themselves…parents who have built our families through open adoption; we understand the anxieties and hopes involved in this process. IAC is committed to cooperating fully with the bankruptcy trustee.”

If you were working with IAC before it closed, you likely will be listed as a creditor and will receive information on how to file a proof of claim for any money the agency owes you. If you are a client of IAC and do not receive a notice within the next couple of weeks, the trustee encourages you to obtain a proof of claim from the bankruptcy court online.

Here’s the information you will need:

  • Case: 17-40327
  • Doc# 1 Filed: 02/03/17
  • Entered: 02/03/17 20:20:48
  • Location: Bankruptcy Court for Northern District of California — Oakland, California

In the meantime, if you have been affected by the IAC closing and are located in North Carolina, our two adoption attorneys — E. Parker Herring and Bobby D. Mills — may be able to help you move forward with your adoption process. Contact us today at 919-821-1860 to find out how.

Here are answers to some of the questions you may have about the IAC closing:

1.     How will families get their adoption paperwork back?

Unlike in Chapter 11 bankruptcies where a trustee steps in to run a business, in a Chapter 7 bankruptcy, no one is charged with the ongoing management of the business or files. The procedure for managing the files may vary from state to state. Each state has its own laws addressing the disposition of files when child-placing agencies close.

The trustee is obligated to follow relevant state laws. The trustee may voluntarily instruct IAC to send files to the relevant state authorities for distribution but does not have the authority to recover the files. Everything that happens has to be approved by either the trustee or the bankruptcy judge.

Notify and contact the Division of Social Services (the adoption agency licensing department) in the state where the IAC branch you were working with is located. Tell them that you are trying to get your files and see what assistance they can provide.

In North Carolina, the Division of Social Services, Regulatory and Licensing Services of the North Carolina Department of Health and Human Services is working with local private adoption agencies and the trustee to make arrangements to transfer the files to local private adoption agencies to manage and maintain. More information should be available next week.

In North Carolina the bankruptcy trustee has already reached out to all of the North Carolina licensed agencies to try and find an agency that will take over the files.

2.     Will families recover any funds from the bankruptcy?

Unfortunately, probably not, as this is a Chapter 7 bankruptcy. The trustee is charged with collecting assets, identifying creditors and distributing assets among the various classes of creditors. Secured creditors, like banks, have priority. Clients, as unsecured creditors, are last in line. It appears that the assets are not sufficient to pay the claims of all of clients signed with IAC as adoptive parents.

Nonetheless, file a proof of claim with the bankruptcy court and attend the creditor’s meeting if you can. The first meeting of creditors is scheduled for March 14 in Oakland, California. Even if the likelihood of recovery is small, file a proof of claim anyway to ensure that you receive notices. The proof of claim form is attached.

3.     Can families sue?

Probably not — the bankruptcy automatic stay prohibits all lawsuits. Anyone who wants to sue has to ask the bankruptcy court for relief from the stay.

4.     Does the potential bankruptcy distribution affect eligibility for the adoption tax credit?

It is too early to know. We advise you consult your tax professional. It is reasonable to expect that the IRS would wait for the trustee to first distribute funds to the general unsecured creditors before assessing the credit and then offset any distribution before assessing the credit. But some tax experts think that the tax credit can be used.

5.     Can families take themselves off the bankruptcy as a listed creditor so they can get the tax credit?

Not unilaterally — the trustee would have to approve the release of claim.

6.     Can IAC clients claim their losses as eligible adoption-related expenses?

We are not tax lawyers and do not give tax advice. You should consult your own tax professional about your situation.

That being said, it may depend. Generally the tax credit is a per-child credit and is available for each placement or failed placement. It is generally not available unless a child was identified. There are a few situations that apply:

  1. If an adoptive parent was not matched for a placement, then it is unlikely that a credit is available, but it is too early to tell.
  2. If an adoptive parent was matched for a placement and that match fails, then a credit is available. The credit is claimed in the year after the adoption fails.
  3. If an adoptive parent is matched for a placement and the adoption is finalized, then the credit is available. The credit is claimed in the same year when the adoption is final.

If the expense was paid to IAC in 2016 then the earliest the “failed adoption” could be claimed would be the 2017 tax return, filed in 2018.  If the funds were not paid to IAC until 2017 then the claim can’t be taken until the 2018 return filed in 2019.

7.   Where can we get more information?

Visit the Facebook page for those affected by the closing.

Additional helpful information can be found here.

You can view the bankruptcy petition and subsequent pleadings if you register with Pacer (Public Access to Court Electronic Records).

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