Northern California Bankruptcy Lawyer

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About Cathy Moran

I'm a veteran bankruptcy lawyer and consumer advocate in California's Silicon Valley. I write, teach, and speak in the hopes of expanding understanding of how bankruptcy can make life better in a family's future.

Speak Fluent Bankruptcy

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bankruptcy terms

Bankruptcy has its own language.  If you are considering filing bankruptcy, it helps to know the language spoken there.

Master just a couple of words and phrases, and input from a bankruptcy lawyer starts to make sense.

So, in our continuing campaign for better understanding of bankruptcy, here’s a dozen phrases from the language of Bankruptcy for your meeting with a bankruptcy lawyer.

Essential bankruptcy terms

Petition – the first paper filed in a bankruptcy case that initiates the case.  It invokes the automatic stay. 

Automatic stay – an injunction against creditors that halts collection and foreclosure just because the petition has been filed. 

Schedules  = the balance of the papers filed after the petition to flesh out your bankruptcy case.  

Trustee  – the individual appointed by the Department of Justice  to oversee your filing and to represent the interests of creditors as a whole. 

U.S. Trustee – an employee of the Department of Justice who supervises trustees and monitors Chapter 11 cases with no creditors committee

Means test – a form and a formula added to consumer bankruptcy cases supposedly to ferret out bankruptcy filers who are really able to pay creditors without bankruptcy.

Discharge – the court order that makes your dischargeable unsecured debts unenforceable

Dischargeable – debts that may be wiped out in bankruptcy  

Non dischargeable  debts that are excluded from the  discharge by the terms of the Bankruptcy Code.

Reaffirm – an agreement made after filing to waive the discharge as to a particular debt.  Reaffirmation requires court approval  

Transfer  – any act that changes ownership or title to an asset, or creates a lien on an asset.

Post petition – events that happen after the petition for bankruptcy is filed.

Add some numbers to your list

Because bankruptcy is based on the Bankruptcy Code, bankruptcy types tend to use the number of some important statutes as shorthand.

341 – Section 341 requires a first meeting of creditors in every bankruptcy case.  We call that the 341 meeting.

523 –  This is the section that lists the debts that are non-dischargeable.  Several subsections require an affected creditor to prove his debt is non dischargeable.

727 – This section sets out the circumstances when a discharge can be denied altogether.  It can be brought by a creditor or the trustee for the benefit of all creditors.

Bankruptcy chapters come next

Different chapters of the Bankruptcy Code provide for different kinds of bankruptcy cases that may be filed.

Chapter 7  – a liquidation bankruptcy case available to individuals and business entities, but not trusts or estates.

Chapter 13  – a reorganization case for individuals with debts under certain limits.

Chapter 11  – a more complex reorganization case for individuals and business entities without debt limits

Chapter 12  – a simplified reorganization proceeding for family farmers

Use your words

Now that you have a working bankruptcy vocabulary, start talking to a bankruptcy lawyer to find out how these concepts work in real life.

Don’t be afraid to ask questions.  There is no reason why you should immediately understand this very specialized area of law.

Even when you understand the concepts, how those concepts apply to your situation, and how they interact with each other is what’s really important.

Make sure you pick a bankruptcy lawyer willing to take your questions and to deliver answers that you can understand.

More

Questions to ask a bankruptcy lawyer

What makes a bankruptcy lawyer great

What should bankruptcy cost?

Financial Fundamentals: Credit v. Debit

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financial literacy building blocks

Just because it’s plastic, doesn’t mean it’s a credit card.

Yet when I ask my clients about their credit card accounts, too many of them proffer their debit card.

And the confusion about plastic cards that aren’t credit cards isn’t confined to those in debt. My young adult son struggles with the distinction, too.

So, let’s trot out the vital distinctions.

 A credit card let’s you borrow money on the fly according to the terms of your agreement with the card issuer.

 A debit card let’s you access your money in your bank account by swiping the card.

Look-alike cards work differently

Same shape, same feel, same layout.  The confusion is understandable.

The CFPB explains prepaid cards v. credit cards

Label each with a credit card company’s name, and the masquerade is complete.

The basic distinction is that a credit card gets you a small loan on demand. You can borrow money to buy stuff, or get cash, up to your credit limit.

It’s generally a very expensive loan, and the repayment terms are so relaxed that you almost don’t notice that the minimum payments will be with you nearly forever.

The debit card simply allows you to spend your own money more quickly than writing a check.  It gives the merchant comfort that you really have the money to spend.  The credit card logo just means that you can spend your money via plastic where the merchant accepts that brand of credit card.

Opting to pay more for your card

Your use of a debit card to spend your own money is subject to an agreement with your bank or credit union where the money is on deposit.

One provision of that agreement covers what happens if you swipe the card for a purchase in excess of your bank balance.  Logically, if a debit card just gets you convenient access to your money, and you don’t have enough money, the transaction should be declined.

But you can agree (opt in) to having the bank cover the shortage, for a fee.  Yes, Virginia, there’s always a fee in these deals.

More about opt-in

Pre paid cards bypass the bank

Finally, the prepaid card is an electronic wallet.  The prepaid card carries around however much is loaded on to it.

Its appeal is that no banking relationship is required.

Its dark side is that each swipe of the card deducts not only the cost of your purchase, but also a fee for its use.

There are fees for activation, monthly maintenance, reloading, and ATM use.  ConsumerReports

So, there you have an introduction to plastic in the world of finance.

More

Fundamentals of Compound Interest

Take The Long View With Your Money

Taxes:  A Beginner’s Guide

 

Three Barriers To Getting Out Of Debt

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get out of debt

Three emotions, not reasons, keep people from filing bankruptcy and getting out of debt.

While not as sexy as the seven deadly sins,  these emotions still keep my clients mired in debt long after logic says “quit”.

Fear

Stubbornness

Pride

These emotions keep people mired where they are. They block the road forward.

Fear

Fear of the unknown probably kept our primitive ancestors alive.  In the age of the internet when nothing remains unknown, it’s ironic that fear continues to keep people from filing bankruptcy.

People fear life in a consumer society without credit.  They fear being branded as a failure.  They fear the judgment of others about whether they are worthy of bankruptcy relief.

Some of this fear is rooted in bad information that circulates;  some of it is deliberately planted by those who profit as long as you avoid the bankruptcy remedy.

So, I’m with Franklin Roosevelt:  all we have to fear is fear itself.

Stubbornness

It’s hard to knock stubbornness, even when it keeps people doing foolish things.  After all, stubbornness, the drive to finish what you started, is often a virtue.

I’m talking about the attitude that says “these are my debts, and by d***n, I’ll get them paid”.  Honorable, but not always rational.

See how long it takes to pay off a modest credit card balance by paying the monthly minimum.

After all, life is about choices, and the choice to keep chipping away at a Mt.Rushmore of debt means usually that some other need, real and important, goes unmet.  The greatest of these neglected choices, in my world, is retirement savings.

Cultivate stubbornness as a virtue, and the negative events of the past poison your future as far as the eye can see.

Pride

 I’m not the kind of person that files bankruptcy, I often hear.

Well, what kind of person is it that files bankruptcy?

It’s people who’ve gotten sick, even with health insurance;  people who’ve divorced;  people who’ve lost jobs; and people who got suckered into believing that the marvels of a consumer society were available to everyone.

Bankruptcy is not a moral failing; it’s a legal solution to an economic problem.

Look around at the celebrities and the iconic corporations who have all filed for bankruptcy relief.  Do we think that they are lesser people for starting over?  Not usually.  Walt Disney, one of the more famous bankruptcy filers is an American hero.

For too many, it takes exhaustion to get over the emotional barriers:  when the wall of these corrosive emotions is worn down, rationality wins out.

Bankruptcy Alphabet: A Is For Assume

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In my bankruptcy alphabet,  “A” is for Assume.

Clients assume all kinds of things about bankruptcy, most of them incorrect. Invariably, each assumption is more horrific than the truth.

  • People assume that they lose everything in bankruptcy.
  • They assume that the court controls their finances.
  • They assume they have to justify filing bankruptcy.
  • They assume they”ll never get credit again.

The list goes on. Each of the assumptions above is false.

Some assume that they can do it themselves as “bankruptcy is just filling out forms”.  As a bankruptcy lawyer who winces at what untrained lawyers do in this field, that horrifies me. Too much is at stake to represent yourself.

Even assumptions based on bankruptcy before 2005 might once have been true, but aren’t true any longer.

If you’re having money troubles and bankruptcy seems too scary, move enough beyond your assumptions to consult a bankruptcy lawyer for Better information.

Today’s post was brought to you by the Letter A.

This exercise was suggested by my partner at Content Matters, Jay Fleischman.
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Image: Light Impressions-Fotolia.com

Means Test Means Little In Bay Area With New Census Numbers

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The latest numbers used in means test for the San Francisco Bay Area after April 1, 2020 are out.  They reinforce my contention that the means test is meaningless for most in Northern California.

Bankruptcy’s means test was sold to Congress in 2005 as a way to make sure those filing bankruptcy really needed relief.

It added expense and complexity to bankruptcy, which was  what the drafters secretly wanted.  They’d heard this story of people casually filing bankruptcy to avoid the inconvenience of paying their bills.

Of course, that was a myth; but that’s another story.

The income dividing line increases

Those whose gross family income is below the median get a pass on the means test.  It simply doesn’t apply to below median income debtors.

Median: the middle number in a sequence of numbers 

The median income for a family of four this spring in California is $101,315.

Make less than that, exclusive of Social Security, and you are free to file bankruptcy without taking the test.

Housing costs drive the bus

If you make more than the median income, the means test applies.  That doesn’t mean you can’t file bankruptcy.

It just means you have another hoop to jump through.

The means test formula purports to calculate how much money you have available each month after paying essential expenses.

The ugly truth for this high-cost part of the world is that housing eats up far too much of our budgets.

Lets assume you are just over the median income line and gross $102,000 a year, a fine salary in many places, but not really enough here.

The folks at the Census Bureau, who supply the bankruptcy system the numbers that drive the means test, say it costs $4173 a month to house a family of four in San Mateo County.

That’s almost half of the gross monthly income of a $102,000/year household.  Not much is left to pay for food, clothes, medical care and transportation.

Good news, bad news, there’s nothing really available to pay creditors, inside or outside of bankruptcy.

So bankruptcy is available because you’ve passed the means test.

Mortgage payments deductible

The same calculus applies to homeowners:  over median families can deduct monthly mortgage payments, property taxes, HOA dues, and hazard insurance from their gross income in doing the means test.

Again, those expenses tend to swallow up a huge part of most incomes.

Leaving little or nothing for creditors.

And leaving you the choice of which chapter of bankruptcy furthers your goals.

More about the means test

Who gets excused from the means test

Cheat sheet for passing means test

See a bankruptcy lawyer before making any of these stupid moves

No Rush To File Bankruptcy

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file bankruptcyWhen the virus steals your income, it’s easy to be overwhelmed with unpaid bills and terrifying economic uncertainty.

Immediate relief by filing bankruptcy may look appealing.

Make it all go away, you say. I’ll never pay this off.

But not so fast.

With few exceptions, this bankruptcy attorney thinks it’s too early in this pandemic to think about filing bankruptcy.

Here’s why.

Creditors have few remedies

In the short run, unpaid creditors can’t do much about non-payment.  Courts are essentially closed, lawyers are at home, and sheriffs have been ordered to stand down.

The normal legal remedies for non-payment simply aren’t available.

And few creditors think that hard ball tactics and lawsuits are actually going to make money magically appear.

We’re not at the bottom

One of  my indicators that it’s time to file bankruptcy is when you know you’ve hit the bottom.

When things are looking up and your future income is exposed to past debts, then it’s time.

Relief in bankruptcy is a rationed item:  you can only file Chapter 7 every eight years, and Chapter 13 slightly sooner, but not at will.

You don’t want to shoot your wad too soon.  Move too quickly and you may find that more debts accumulate but you’ve already played the bankruptcy card.

Today’s debts dischargeable tomorrow

You needn’t worry that you have to file bankruptcy before you are sued, or before a judgment is entered, or even before your bank account is levied.

At any point in the life of a debt, the debt can be discharged.  Assuming it’s a dischargeable debt, which most are, its age or procedural posture makes no difference.

Governmental action may change the picture

Given the massive nature of the COVID-19 recession, further action from the government to stabilize the economy and protect the millions of people affected is assured.

The shape of that assistance, the size of the help, and whether it actually keeps people from needing bankruptcy, it’s too soon to know.

But this bankruptcy veteran is counseling that we take it slow and understand the lay of the land before rushing to bankruptcy court.

More on Coronavirus economic survival

The Secret Bankruptcy Exemptions

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Telling a secretExemptions in bankruptcy are all about what you keep.

Exemptions define the collection of assets and rights that are safe from the reach of a bankruptcy trustee or your creditors.

But planning exemptions in a bankruptcy case is more than just the looking down the list of things you keep through bankruptcy and the dollar amount that is protected.

Jay Fleichman suggested that if the value of your assets exceeded the exemptions available, Chapter 13 needed to be your chapter of choice.

Actually, your exemptions in bankrupty swell beyond the stated amount for reasons not printed in the law books.

Subtract transaction costs from asset value

The unwritten enhancement to exemptions are the transaction costs, those expenses incurred to turn an asset into cash.

A Chapter 7 trustee can sell assets that are not exempt or that have an exemption that covers only some part of its value only if the sale produces money he can distribute to creditors.

To turn some assets into cash, he has to sell them.

There may be an auctioneer or realtor’s commission involved. The sale may trigger taxes.

And the trustee gets paid for his work from a fraction of the money he distributes to creditors.  Gotta subtract his commission before paying creditors.

So, add to the exemption value the estimated costs of the trustee’s sale and his commission.  Trustees are only supposed to take the debtor’s things for sale if the sale produces a meaningful distributions to creditors.

Why debtors keep their homes

The simplest example of transaction costs at work is a house with more equity than the exemption.

After you’ve taken the sale value of the home and subtracted the liens on the property and the homeowner’s exemption, subtract the realtor’s commission and any other sales expenses to see if there is really equity for creditors available upon a sale.

Take out the trustee’s commission and any capital gains taxes too.

In order to sell an asset, the trustee must show the court that after all the expenses, there will be a meaningful distribution to creditors.  If there’s little or nothing left after this calculation, the trustee should not sell the home.

Rearrange your holdings

If you have an asset that can’t be exempted, consider selling it and putting the sale proceeds into an asset that can be exempted.

Sure, you lose the particular asset, but you don’t lose its value, if you can put the money into an exempt form.

There are some limits:  you need to get fair market value for the asset you’re selling.  No bargain sales to your brother.  Arms length transaction for whatever the asset is worth today.

It’s no problem if the asset isn’t worth what it once was, or that the market is depressed.

You just need to realize what the world is paying today for things like it.

Make good use of cash

My favorite use of “extra” cash is to fund an IRA for every bankruptcy filer with available, non exempt money.  It is universally regarded as a meritorious move.

IRA’s, after all, now have a federal bankruptcy exemption in excess of  $1 million.

Another exemption-expanding stategy is to spend non exempt income and save exempt income.  Social Security income is exempt from creditors and from bankruptcy trustees.

In California, retirement income is also exempt.

If that’s your situation, consider spending the proceeds from the sale of something that isn’t exempt, and saving the exempt money.

It’s critical that you segregate the exempt income in its own bank account.  You want to be able to trace the money on deposit to an exempt source.

More ideas on what to do with non exempt cash.

Get good legal advice

Exemption planning is a tricky subject.  Some trustees and some regions of the country take huge offense if a debtor has rearranged things to keep more than he might otherwise have kept.

The larger the sums of money in motion, the more likely you are to hear the dreaded phrase:  pigs get fat and hogs get slaughtered.

An experienced bankruptcy attorney can help you find the line between the two.

Read more

Tax refunds and bankruptcy planning

What happens to my house after bankruptcy

Image:  © BlueOrange Studio – Fotolia.com

Does This Ailing Business Have A Future?

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virus damaged business

Long after the human patients recover from the coronavirus, small businesses will still be ailing.

And long nights will be spent deciding whether to try to stay in business.

Here are some things to weigh as you consider the future.

The desire to continue

The most important part of most small businesses is the owner. The owner supplies the vision and the drive that makes the business run.

If you are drained of vision and drive, then allow yourself to exit. Soldiering on just so you don’t have to admit you’re done is unlikely to have a good result.

If you’re game to continue, there are more questions.

Is the business viable

When the lock-down is over, and we creep back to the new “normal”, the next gating question is whether there’s a post pandemic market for the business’s product .

And if there is continuing demand for the product, how long is the ramp up?  What financial resources does it take to survive the ramp up? And what’s the likely volume of business to be expected over the short run? The longer run?

Reorganize for survival

The pandemic has forced change and re evaluation on all of us.  When things are already disrupted, considering change seems less overwhelming. And more essential.

Could the business continue with

  • fewer owners
  • fewer employees
  • no brick and mortar premises
  • narrower market
  • broader market
  • partnered with others

Embrace the disruption and move the pieces around the board, at least in your mind.

New debt and lingering death

Business loans seem to be at the center of the government’s recovery strategy. Distressingly, the rules about when/if those loans need to be repaid are unclear, incomplete, and subject to change.

It’s worth some thought as to whether the business can handle more debt. What is the current debt structure, and were you paying that debt down before the pandemic?

Another way to think about more borrowing is that it may be essential as a short term strategy to keep food on the table until you have more options outside of the current business.

Wind down and move on

Writing the existing  business off as a lost cause isn’t necessarily an all or nothing choice.

Perhaps you fold the existing business but remain in the same industry, as a proprietor rather than an entity, or as an entity after a personal bankruptcy.

Dangers inherent in corporate Chapter 7

Maybe, this is the time to change industries, take a salaried job, return to school, or ????

Challenges for all

The issues are complex and intertwined. And with the virus still shadowing our lives, uncertainty abounds. Allow yourself some time to consider how you move forward.

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Collected posts on coronavirus impact on personal finances

California Statute of Limitations Gets Teeth

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law has teeth

California law on debt collection finally has teeth.

Recent changes to California law say that a debt collector must allege that the statute of limitations has not run when it files a lawsuit.

No more suing on long-dead debt and winning unless the consumer files an answer and pleads the statute of limitations.

No more collectors relying on consumers being broke, scared, or ignorant of the legal facts about the timeliness of a lawsuit.

The timeliness of the lawsuit has gone from being matter of defense to an element of the cause of action.

Score one for consumers.

California statute of limitations on debt

The law on when you can sue someone on a contract, like a credit card, a medical bill, or a personal loan, lives in the Code of Civil Procedure.

AB 1526 added to the statute of limitations in § 337 the following:

(d) When the period in which an action must be commenced under this section has run, a person shall not bring suit or initiate an arbitration or other legal proceeding to collect the debt. The period in which an action may be commenced under this section shall only be extended pursuant to Section 360.

Before the 2019 change

Used to be, a creditor was free to sue on a debt, even if the creditor knew that the four year California statute of limitations was long past.

The burden to assert the statute was on the defendant to raise the statute as an affirmative defense.

An affirmative defense operates to say, in the pleadings, that even if everything you claim is true, you don’t win because….

As a result, the issue of whether a debt was too old to be enforced through the courts was seldom considered by the judge because the consumer-defendant never filed an answer.

If no answer is filed, the judge effectively never considers the merits of the lawsuit.  The system assumes that if a lawsuit is defective, the defendant being sued will answer and point it out.

But that’s not how most collection actions go.  The overwhelming number of collection actions go to judgment by default, because the defendant never spoke up.

New law in action

As of now, Spring 2020, there don’t seem to be reported cases applying the new rule.

Over time, it will be worth looking at whether the number of collection actions goes down.  That may be hard to discern if we hit a period of further economic distress.

More

What to do when you are sued

All about California judgments

Will bankruptcy wipe out a judgment

 

 

 

Feds Offer Deferral Option For Home Mortgage Payments

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save house

Homeowners with federally backed mortgage loans just got a lifeline for payments skipped under COVID 19 forbearance agreements.

The feds have mandated that servicers offer deferral as one way to repay those payments that came due while the loan was in forbearance.

Deferral results in the missed payments being added to the back end of the loan. When homeowners resume making payments, their payments are the same as they were before the forbearance.

The deferred payments will be due when the home is sold or refinanced, or when the loan reaches the end of its term.

Without a deferral option

This action saves homeowners from facing a lump sum payment of the skipped payment the month after the forbearance ends.

The language in the offers of forbearance that I’ve seen all said that the missed payments were due in full at the end of the forbearance. Or the homeowner would have to negotiate a loan modification.

Pronouncements from governmental sources similarly suggested that each borrower with a forbearance agreement would have to negotiate with the servicer a modification of their loan terms.

Requiring loan modification threatened, in my view, a repeat of the disastrous round of mangled or illusory loan modifications we experienced in the Great Recession. The pandemic has put far more homeowners in jeopardy than we experienced a decade ago.

Guidance only for federally backed loans

While the federal government owns or backs some 2/3’s of home loans nationally, the remaining loans are not guaranteed the same mitigation options that FHFA directs.

You can find out if your loan is owned by Fannie Mae or Freddie Mac, the huge governmental financing agencies through these look up tools:

Fannie Mae

Freddie Mac

More on personal finances & coronavirus

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Tax deadlines moved

Chapter 13 cases imperiled by lock-down

Future of small business

Thinking about filing bankruptcy

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Suite 403
Redwood City, CA 94063
Phone: (650) 694-4700

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