8 Essential Tasks To Maximize Your Bankruptcy Fresh Start

sheikh_tuhin_To-Do_List-public domain Got your bankruptcy discharge recently?  

The end of the bankruptcy case is the start of your new financial life.

Now, you’ve got work to do to maximize that fresh start.

Save your bankruptcy papers

The bankruptcy schedules listed everyone you owed money to when you filed.  Those creditors got notice of your case. The discharge wipes out your liability to most of those creditors.

Save the creditor lists and the discharge order because chances are that some of your creditors will sell your discharged debt to a debt buyer who will try later to collect from you.  That’s zombie debt.

Proof of notice to the original creditor and the discharge order should ward off zombies.

List the debts that weren’t discharged

You may have debts that the law doesn’t allow to be discharged:  family support, recent taxes, and student loans .  If you have these kinds of debts, they survive the bankruptcy discharge.  The creditors retain their rights to enforce them.

If you are keeping a vehicle subject to a loan, you need to keep making those payments or the car will be repossessed.

The discharge order doesn’t say what debts survive;  you need a list of what you still have to pay.

Verify lien balances

Liens on your assets survive the discharge.  The creditor may not be able to  sue you if you don’t pay, but they can seize the collateral if you don’t pay.

Find out what you owe on your car loan and your mortgage.  Ask the creditor to resume sending bills or to restore online bill pay.

Rearrange banking

Online banking and automatic bill pay may have been disabled while you were in bankruptcy.  There should be no barrier after your discharge to using electronic tools to manage your money.

Timely payment of your bills is one of the most important factors in rebuilding credit.

Set up automatic savings

Bankruptcy probably pointed out just how little net worth you have and how thin your safety net is.

Arrange for automatic savings for both an emergency fund and for retirement.  Saving is easiest if you never see the money.

Have it deducted before the check lands in your checking account.

Join a credit union

Credit unions are in business of making loans to  their members.  Become a member now, so when you need to replace a car you have a history, a good history, with the credit union.

Credit union rates are usually better than the banks, and the profits flow to members.

Check insurance coverage

If you elected to surrender property through the bankruptcy, it’s possible that the property still stands in your name.  If you are still the legal owner, you are potentially liable for injuries that occur on the property.

Make sure that you are protected with liability insurance until someone else goes on title.  It would be a shame to have an uninsured accident spoil your fresh start.

Pull your credit report

Several months after your discharge, check your credit report.  Get a free report at annualcreditreport.com, not the other guys.

Make sure all discharged debts shown on your report show a zero balance.  The ugly history can properly remain, but you are entitled to a showing that you now owe nothing.

If old debt is improperly listed, get those credit report errors corrected.

Take advantage of the opportunity that bankruptcy has provided, and go forth and prosper.




Collection Suits and Court Dates

I know that those in financial difficulty are frequently not operating at their peak. But for the life of me, I can’t understand how the recipient of a summons and complaint from a California court can take from the papers only that they have a “court date”. Arghhh!

The basic outline of a collection suit is that the creditor files a complaint with the court. The court issues its summons, which validates the complaint and puts the defendant on notice that there is a legal suit pending.

The summons tells debtors plainly that they must file a typewritten answer to the complaint within 30 days of service, or the defendant may get a judgment for the relief prayed for, which is usually money.

Served with the complaint is a notice of case management conference on a given date, well after the date on which the answer is due. At the case management conference, assuming that an answer has been filed, the court will set deadlines, trial dates, etc. But none of this scheduling is necessary if the defendant has not contested the complaint by filing an answer.

Why is it that a consumer debtor grasps only the date of the case management conference, and absorbs none of the rest of the message that says clearly, in two syllable words, that one must file an answer for there to be anything for a court to decide?

I should have a cassette tape to play to tell clients that the case management conference date is meaningless if you didn’t file an answer. If you don’t have a defense to the action, that’s fine. Just don’t obsess about a date that means nothing if you didn’t take the time to read the summons and understand that filing an answer is the price of admission.

There’s more on the subject of collection suits at Bankruptcy in Brief.

How To Spot A Fake IRS Officer

Industrial espionage concept with masked businessmanIdentity thieves are now posing as “helpful” folks from the IRS.

These scammers email you with the disturbing news that your tax return has been flagged for further examination.

Posing as representing the IRS Taxpayer Advocate Service, they offer help in “resolving” the problem, if you’ll just click a link and provide them information.

They even provide a fake case number.


Add this offer of “help” to the collection calls threatening arrest if you don’t pay the caller money as the latest scams referencing the IRS.

These are scams.  How do I know?

Tax authorities don’t use email

Neither the IRS nor its Taxpayer Advocate Service use email, text messages or social media to contact taxpayers.

I’ve had trouble, as a lawyer, trying to email IRS personnel about our ongoing work on a client’s tax problem.  They are so skeptical about email that the tax official and I had to develop a code to identify the case in question.

Tax authorities almost always initiate contact with you through the mail.  It’s safe to say that if the IRS phones, faxes, or emails you about a tax problem, it’s a scam. [Read more…]

4 Rules For Testifying At Your Bankruptcy Hearing

BusinesswomanGoing to court for your first meeting of creditors?

What are they going to ask me?, you wonder.

My bankruptcy clients imagine a quiz on the contents of their bankruptcy papers.

Or worse, an inquisition on why they needed to file bankruptcy.

That’s not likely.  The first meeting of creditors is much more likely to be a snooze.

Jay Fleischman set out a very comprehensive list of questions a Chapter 7 trustee might ask at your bankruptcy hearing.

Let me add my rules for answering those questions.

1.  Listen to the question

Just because you’ve read Jay’s list and think you know what’s coming, listen to the trustee’s question, all the way to the end.

First of all, it’s only polite.  Second, you want to make sure that you know what the trustee wants to know.

Your answer is being recorded.  You want to make sure you are answering the question that the trustee asked.

2.  Answer truthfully

Honest disclosure is the price of getting a bankruptcy discharge.  This is not the time to be cute or tell anything less than the truth.

You are answering under oath.  You are subject to the penalties of perjury if you intentionally are less than honest.

3.  Be brief

Answer the question that the trustee has asked, truthfully, in as few words as possible.

Don’t explain, don’t justify, don’t ramble.

Just answer the question.

If the trustee needs to know more, he can ask a follow up question.

Usually, the trustee is just trying to make a record that he has done his job.

He has a list of cases he has complete.  Don’t make his day any longer by volunteering more than he wants to know.

4.  Don’t guess

If you don’t know the answer to a question, say so.  If the answer is honest, it’s perfectly OK.

Perhaps your counsel can help.  Maybe there are documents that provide the information.

Don’t pretend to a level of certainty if you don’t really know.

All’s well

If you’ve been diligent about getting your attorney all the requested information, chances are the first meeting of creditors will be the last, and you’ll be on your way to a fresh start.

Image:  © Innovated Captures – Fotolia.com

On Title? In A Bankruptcy Not Your Own

roping gearIt isn’t just marriage that can get you roped in to a bankruptcy case that isn’t your own.

Jay Fleischman discussed community property and the impact of a bankruptcy case by one spouse filing along.

But the issue is broader:  joint ownership of any kind of asset in any state, community property or not,  exposes you to a loss of control of your property if your co owner files bankruptcy.

The bankruptcy court has the power to sell your property or force you to buy your partner out.

Co owners at risk

If your partner in a business or a piece of real property files bankruptcy, the partner’s interest may be sold for the benefit of your partner’s creditors.


And since the sale price of only your partner’s interest in the property would probably be less than the fraction of the partner’s ownership, the Bankruptcy Code gives the bankruptcy trustee the power to sell your interest too.

Now, you get your share of the proceeds of the sale.  Your interest doesn’t go to your partner’s creditors.

But you do pay your share of the costs of the sale and any tax consequences that the sale triggers.

Your right of first refusal

You also get the right of first refusal:  you can match the price at which the trustee proposes to sell the property and prevent the sale.

While that allows you to keep your asset, the timing may not be convenient.  Buying out the bankruptcy estate may not be feasible at this point in time.

Preventing sale

The Bankruptcy Code requires that a trustee who wants to sell co owned property bring an adversary proceeding before the judge.

The trustee has to show that the harm to the  creditors of your partner  if the trustee couldn’t sell the entire property would be greater than the harm to you of the proposed sale.

In the typical investment scenario, the trustee wins that one.

Plan ahead

I come back to my rule that any time you pool money with another person, you need to plan from the beginning how the partnership ends.

If you are the owner in financial trouble, you need to understand how your co owners are impacted by your bankruptcy filing.

If you are the financially healthy co owner swept into a bankruptcy, you need a plan for either funding a buy out, or a court fight on the trustee’s ability to sell.

Or you need to rustle up a compatible buyer for your partner’s interest.

Nothing is simple, these days.

Image courtesy of awyatt.

The New Rules Of Asset Protection

After meeting with a prospective bankruptcy client who was in a heap of litigation trouble,  I coined a new rule about asset protection schemes.

If it is too complicated for the owner to explain, it probably won’t stand up to challenge.

This man had paid an attorney a fistful of money to create LLC’s and limited partnerships, each of which held fractional interests in the other entities.  Some pieces of real estate were owned outright by one entity or another; others were held jointly.  One LLC was the general partner in another entity.

The client came with a chart, with arrows running back and forth.  He couldn’t explain how it worked, or why it was structured that way, other than to make it difficult to reach his wealth.

But it came down to this:  if there is no explicable business reason for this arrangement, it probably represents a scheme to hinder, delay, and defraud creditors.  One a bankruptcy trustee could penetrate.

What fraud?

One of the hardest concepts for the public to grasp is that of fraudulent transfers.  Here’s the rule:  you cannot legally transfer property for less than its present value in order to keep the asset from creditors.

Put another way:  you can’t give your assets away to keep them from creditors.

At law, there are two kinds of fraudulent transfers:  ones with actual intent to hinder creditors, and ones that are constructively fraudulent. [Read more…]

Credit Reports Heal

band-24298_1280 (1)_optWill filing bankruptcy hurt my credit? Probably.

Should that hit to your credit keep from filing bankruptcy?  Not by a long shot.

Incredibly, I encounter people drowning in bills they can’t ever pay who think their credit report is more important than their financial health.

Their thinking seems to be that credit, once damaged, is never the same.

It’s not so.

A blow to your credit is not permanent nor even long lasting.

Your “credit”, or really, your worthiness for new credit, is almost a living, breathing thing.  It can suffer a blow and recover.

Credit hit is like a cut

Whether you choose debt settlement, debt management or bankruptcy, the solution will damage your credit, in the short run.

Think of the damage like a wound.

The wound bleeds, it exposes the rest of your body to infection.  It hurts.

Think of bankruptcy as antiseptic.  Douse the wound with antiseptic to kill infection and promote healing and it hurts…but the hurt fades.

Over time, the wound closes and scabs over.  It isn’t painful most of the time.

When it’s healed, there’s a bit of a scar.

Over time, even the scar fades.

Debt is chronic disease

When your debts are beyond paying off in the normal course, it’s like a disease you can’t beat.  Persistent symptoms, sometimes progressively worse, other times just ever-present.

Debt saps your energy, consumes your thinking and limits your opportunities.

If your debts are such that you’ve considered bankruptcy, your credit worthiness is probably already compromised.  Would any creditor lend you more money at a reasonable rate?

If not, your credit may not be doing you any good at present.

Your balance sheet is what counts

A credit report is a limited history.  As time passes, the oldest history falls off the report to be replaced with the snapshot of today’s finances.

If you use bankruptcy to wipe away your old debts, your balance sheet (assets minus liabilities) improves on the spot.

The bankruptcy filing shows on your credit report, in the rear view mirror for some time.  But its significance to lenders fades the farther down the road you get from filing.

But with your old debts gone, even right after you file, you no long look like someone who already has as much debt as they can handle  or more.

Take steps to get financially healthy and your credit will recover too.

Image courtesy of Flickr and RambergMedia Images under a Creative Commons license.

Fear of Bankruptcy Misplaced

Shadow of a businessman standingFear accompanies debt, like a man and his shadow.

People in debt are afraid of the caller on the phone.  They are afraid of the process server.  They are afraid of the truth getting out.

Yet, they fear bankruptcy more, apparently.

They seem to fear that life as they know it will end if they file bankruptcy.

Well, at some level, the miserable life of living in debt; sleepless nights;  having no financial  reserves will end if they file bankruptcy.

But they have cultivated a fear of bankruptcy that is stronger than the fear they live with now.

Most fear is self generated

It’s easy to fall into the trap that filing bankruptcy represents defeat, as a personal failure.

My view:  most bankruptcy these days is driven by job loss, ill health, and divorce.

Some fear public exposure.

They imagine those around them standing in judgment on their life choices.

Yet which of us chooses illness, accident, or unemployment?

The failure I see is the unwillingness to utilize an effective and legal means to become economically stable.

Why no fear of penniless old age

This seems to me to be a real fear.

Almost every client who’s struggling to repay credit cards, now at 29% interest, is skimping on saving for retirement.

Courtesy of the Great Recession, they have no equity in their homes.  If they have a job, there’s no pension attached.  They have little or nothing set aside to augment Social Security.

Yet fear of bankruptcy keeps them paying monthly on debt they can never repay.

My last post talked about the institutional purveyors of this fear.

I’m on this soapbox and don’t want to step down til I make some headway on this issue.

The only thing we have to fear is fear itself.

Be fearless.  Better yet, be solvent.

Image © Tinx

Your Business And You In Bankruptcy

multi faceted issueFacets on a gem bend light and change how we see things.

The same thing happens when bankruptcy law encounters a small business owner and the business itself.

Seen from one angle of the law, the business is a valuable asset.

Seen from another, it is nothing more than a job for the owner, having no real value without the owner.

It depends on where you stand and where the light hits.

Is incorporating dangerous?

The question comes up when individuals have a small business that provides a living, but the owners have accumulated crushing debt.

I wrote earlier about how incorporation could create a separate legal entity that could continue to operate during the bankruptcy of its shareholders.

My good friend Doug Jacobs pointed out that under some circumstances, incorporation could be seen as a fraudulent transfer.

A fraudulent transfer is one where the entity conveying property either intends to put it beyond the reach of his creditors, or, receives less than the asset was worth in exchange, leaving the transferor less able to pay his debts.

The bankruptcy code allows the bankruptcy trustee to recapture assets transferred in fraud of creditors.

My counter argument to Doug’s point is that incorporation hardly conveys away the value of the business, as the debtor simply exchanges his outright ownership of the business for outright ownership of the stock in the corporation that owns the business.

If there is real value there, a bankruptcy trustee can reach it by dissolving the corporation.

My second argument is that before incorporation, the business was indistinguishable from the individual. The idea of “transferring” debts to the newly created corporation is facially pleasing, but cannot relieve the individual of any liability he had before incorporation.

It is an axiom of law that no agreement between two entities can bind a third: that is, the individual and his corporation cannot by agreement cut off the right of the individual’s creditor to look to the individual for repayment, even though the new corporation and the individual might agree that the corporation will be henceforth liable.

This analysis is probably more theoretical than real.

The small businesses my clients usually operate are little more than personal services businesses. Incorporation simply provides cover for the trustee who, because of incorporation, doesn’t have to shut the business down as part of his duties to preserve the assets of the estate.

Law colored by local culture

But whether you see incorporation representing a meaningful transfer or not, the issue highlights the fact that the legal culture does vary from place to place.

I practice in Silicon Valley; Doug practices in the Central Valley. Like it or not, even though the law is the same in both places, judges often bring a slightly different perspective to the bench, depending on where they practice.

For that reason, when you select a bankruptcy lawyer, you want one who knows the judges before whom your case will be heard and understands the legal culture in that community.

Image:  Nemo & Pixabay

A Marital Threesome


3 paper dolls_optSounds kinky, doesn’t it?

Three players in a marriage.



Only this is something you can talk about openly, without blushing: community property.

Community property is the default arrangement in California for a married couple.

Yet it is poorly understood by those practicing it and it isn’t inevitable.

How community property works

The community property system provides that everything acquired during marriage is equally owned by the spouses, regardless of which spouse acquired it.

The law provides that property owned before marriage or acquired by gift or inheritance is the separate property of the spouse who acquired it.

The most vivid way to imagine the community property system is to see marriage as comprised (for financial issues) of three players:

  • husband,
  • wife, and
  • the community property.

Each of the three may have different exposure to debts.

[ I speak here of the traditional composition of a marital couple, but remember that both same sex couples and registered domestic partners fall under the California community property system. ]

The central concept is that only the person who contracts for a debt is personally liable.

Personal liability will outlast the marriage.  It’s yours, married or not.

The community, however, is liable, regardless of who incurred the debt.

All of the community property is liable for the debts of either spouse.  There’s no halvsies here: no “my half of the community is liable for my debts”.

On money issues, the community is all in.  All the community property is liable for the debts incurred during marriage, regardless of which spouse incurred them.

And that’s not all:  the community property is liable for the debts of either spouse incurred before marriage.

Liable for my spouse’s debts?

You, personally, don’t become liable for your spouse’s debts by reason of living in a community property state.

That means that the credit card company can’t sue you for a debt contracted by your spouse.  So, no judgment against you for his debts.

But a judgment against your spouse can be collected from the community property, including your wages!

Community property can be avoided

Spouses in California are free to agree that they won’t have community property.

That’s what a pre nuptial agreement is often about.  Spouses can agree that their accumulations during marriage will be the separate property of each spouse.

If you are already a married Californian, maybe the three of you want to talk about this.