Northern California Bankruptcy Lawyer

On The Bankruptcy Soapbox

The Soap Box

If You Can’t Make Your Car Payment During The Virus Shutdown

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car payments coronavirus

How am I going to keep my wheels while the coronavirus looms?

The fight against the coronavirus has cut off income for millions.  While there’s been broad discussion about mortgages and student loans,  there’s less discussion about rent.

So far, I’ve heard no governmental discussion about how to proceed if you can’t make car payments.

Car loans present particular, prickly problems, distinct from home mortgages and student loans:  the car creditor has a lien and the right to repossess the car if you don’t pay.

The closing of the courts and the lack of paychecks to garnish, which limit other creditors, doesn’t protect the car buyer.

And, there’s no governmental protection (yet) from repossession.

Hurray for Edmonds

Edmonds has assembled information on the announced policy of a long list of car lenders.

Check it out.

As of this writing, their page is dated March 17, with a promise to update it as time goes on.

Universal best practices

Anytime that you’re told to “contact your creditor” during this crisis, don’t rely solely on the phone.

The phone is easy, but I have no confidence in the ability of the lender to track those phone calls or retrieve them when necessary.

Follow up every phone call with a short, written letter, identifying yourself and your loan number, along with the meat of your message.

Keep a copy.

We don’t know how governmental and institutional policies will develop, but you want to be able to prove that you reached out as requested.

What’s to come

What’s different in the coronavirus crisis from other financial downturns is that the pain is huge and widespread.

Creditors and the government will have to develop mitigation strategies that preserve people’s mobility and make it worthwhile to keep paying on existing loans.

We’ll just have to stand by to see what they are.

My expectation is that lenders do not want to repossess a fleet of cars, and they don’t want to further tank their cash flow.

And, where I am, the repo guys are quarantined too.

More as news develops.

When you can’t pay your bills because of the virus

Protections for California homeowners during times of pandemic

California renters get protection from eviction

Tax season postponed

 

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

California Renter Protections From Eviction: How To Qualify

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california eviction protection California  bans evictions for non payment triggered by the COVID-19 shut-down under Gov. Newsom’s executive order of March 27,2020.

The protection comes with a big IF:  A tenant must act to trigger these protections, which run through May 31,2020.

Who is protected

The order covers tenants who have been

  • laid off
  • had hours cut
  • suffered other income reductions
  • missed work to care for a child whose school closed

The loss of income has to be traceable to the virus, the state of emergency, or related government response.

How to qualify

You need to do two things to invoke eviction protection.

One, you need to notify your landlord, in writing, that you need to delay, in whole or in part, payment of the rent due.

That notice needs to be given before the rent comes due or within 7 days of the due date.

Two, you need to keep paperwork that supports the claim that your income is reduced by COVID-19.

That documentation can be

  • pink slips;
  • payroll checks;
  • bank statements;
  • medical bills, or
  • signed statement from your employer that explains your changed financial circumstances.

What protection is provided

The order makes two changes to existing law.

First, tenants get an extension of time to answer an eviction complaint.

Normally, a tenant’s answer to an unlawful detainer action (legalese for “eviction complaint”) is due 5 days from service of the summons.

The executive order extends that period for the 60+ days this order is in effect.

Second, no writ of possession may be enforced against a tenant who qualifies under the order.  That means the sheriff can’t evict you if you have taken the steps above.

What’s unclear

This order doesn’t seem to address the situation where the tenant was behind before the order became effective.

That situation may be addressed in further orders.

In most California counties, the issue may be moot because, independently, county boards of supervisors have instructed sheriffs not to enforce pending evictions.

What’s to come

I fully expect that this order or one like it will be extended if the economic shutdown continues beyond May 31.  It’s hard to imagine that it won’t, as I write this.

In the meantime, stay home, stay healthy, and stay hopeful.

More on the virus money crunch

When you can’t pay your bills because of the virus

Car payments and the pandemic

California tax deadlines extended

California Income Tax Deadlines Extended

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california income taxes

California’s Franchise Tax Board postponed until July 15, 2020, the filing and  tax payment deadlines for all individuals and business entities .

This special tax relief due to the COVID-19 pandemic for all California taxpayers was announced  on March 18, 2020 covering

  • 2019 tax returns
  • 2019 tax return payments
  • 2020 1st and 2nd quarter estimate payments
  • 2020 LLC taxes and fees
  • 2020 Non-wage withholding payments

To give taxpayers a deadline consistent with that of the IRS without the federal dollar limitations, the FTB is following the federal relief described in IRS Notice 2020-17.

Since California conforms to the underlying code sections that grant tax postponements for emergencies, the FTB is extending the relief to all California taxpayers.

What you need to do

Taxpayers do not need to claim any special treatment or call the FTB to qualify for this relief.

What you can do

While there’s no immediate deadline to file, now may be a good time to prepare your tax returns.

If you expect to get a refund, all the more reason to file now.

However, if you expect to owe taxes, the FTB offers the ability to make electronic payments online.

Pay online

The days of manually writing a check and mailing it to the taxing agency via certified mail make little sense, given that secure options exist for electronic payments.  Manual checks can be lost in the mail, stolen, or incorrectly posted to the wrong tax period.

The FTB has an electronic one-line payment program called Web Pay.  It can be used by both personal taxpayers as well as businesses (corporation, partnership, or LLC).

There’s more  information on the FTB’s website .

More on money & COVID-19

When you can’t pay your bills during the pandemic

Car payment and the pandemic

Protections for California home loans during the virus shutdown

 

Steven WalkerGuest contributor San Jose attorney Steven L. Walker advises clients on tax controversies and litigation with the IRS, the FTB, and state & local taxing agencies. His clients bring him civil and criminal tax matters, including tax audits and appeals, litigation in U.S. Tax Court and federal district court, tax fraud, offshore/foreign tax compliance, and tax collection. He also advises clients on business matters.  Steven is an adjunct professor at the University of San Francisco School of Law in the LLM (Taxation) program, where he teaches Civil and Criminal Tax Penalties, and Bankruptcy Taxation. He is also a Fellow of the American College of Tax Counsel and a former IRS attorney with additional experience at the FTB Legal Division.  www.walk-law.com.

IRS Pandemic Relief in Taxing Times

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taxes COVID-19

In normal times, this would be tax season.

Not this year; these aren’t normal times.

The recent COVID-19 pandemic has already had a significant effect on our personal and professional lives.  Between states and localities implementing “shelter-in-place” orders, commercial activity grinding to a near halt, and the stock market seeing massive losses, the United States has taken a severe economic hit as well as the public health hit.

COVID-19 virus has  also affected tax obligations.   Here’s what to know.

IRS Extends Deadlines 

Filing: The IRS announced on March 21, 2020, that the federal income tax filing due date is automatically extended from April 15, 2020, to July 15, 2020.  See IR-2020-58

Payment: Taxpayers can also defer federal income tax payments due on April 15, 2020, to July 15, 2020, without penalties and interest, regardless of the amount owed.

This deferment applies to all taxpayers, including individuals, trusts and estates, corporations, and other non-corporate tax filers as well as those who pay self-employment tax.  

Procedure: Taxpayers do not need to file any additional forms or call the IRS to qualify for this automatic federal tax filing and payment relief.

Individual taxpayers who need extra time to file beyond the July 15 deadline can request a filing extension by filing Form 4868 through their tax professional, tax software, or using the Free File link on IRS.gov.

Businesses who need additional time must file Form 7004.

Refunds

IRS urges taxpayers who are due a refund to file ASAP

. Most tax refunds are still being issued within 21 days.

The IRS expects to continue to monitor issues related to the COVID-19 virus, and updated information will be posted on a special coronavirus page on IRS.gov.

Ways to Pay  The IRS 

IRS Direct

The IRS  offers the ability to make electronic payments online.

Therefore, the days of manually writing a check and mailing it to the taxing agency via certified mail make little sense, given that secure options exist for electronic payments.  Manual checks can be lost in the mail, stolen, or incorrectly posted to the wrong tax period.

For the IRS, individual taxpayers can make an electronic payment online through Direct Pay with a bank account.  See the following link:  .  An individual taxpayer may use this service to pay Form 1040 taxes, estimated taxes, or other associated forms directly from your checking or savings account at no cost.

Also, the website allows a taxpayer to track payment by signing up for email notifications.

One drawback with Direct Pay is that not all tax liabilities can be paid using Direct Pay.  The IRS has a helpful lookup table online to determine whether a balance owed to the IRS can be paid using Direct Pay.

If payment cannot be made using Direct Pay, a taxpayer must use the federal government’s Electronic Federal Tax Payment System, also known as EFTPS, which is discussed below.

Electronic Federal Tax Payment System 

The best option for businesses or large payments is through the Electronic Federal Tax Payment System (EFTPS), a free service from the U.S. Department of the Treasury.

A taxpayer must enroll online to get started, and in seven business days, a Personal Identification Number (PIN) will be mailed to the taxpayer’s contact address.  Upon receipt of a PIN, a taxpayer can make payments and check payment history.

A potential drawback with EFTPS is that a taxpayer must wait to receive a PIN before making a payment, but once enrolled, the process is relatively straight forward and secure.  Like Direct Pay, a taxpayer can obtain a receipt and track payment.

Why filing deadlines matter

Taxpayers should always file their tax return on or before the due date and confirm with their tax return preparer that the return was timely filed.

This means obtaining a copy of the electronic receipt that the return preparer received after filing the return.

Many taxpayers fail to do this and assume that the accountant timely filed the return.  If, however, for some unexpected reason, the return was not timely filed (e.g., the return prepare mistakenly failed to transmit the return or the transmission did not go through), it may be difficult to avoid a late-filing penalty, even if the taxpayer relied upon the accountant to timely file the return.

There are separate penalties for failing to file AND for failing to pay.  Regardless of your current ability to pay, file the return and limit the penalties.

If you can’t pay

Given the unprecedented times, some taxpayers may simply lack the financial means to pay the taxes reported on the return by the due date.

There are options available for taxpayers in this situation, but the most crucial advice is to timely file the tax return by the due date to avoid the late filing penalty.

Once the return is timely filed, a taxpayer can choose a collection alternative, such as an installment agreement, offer in compromise, or currently not collectible status (financial hardship).

Other options may also exist, such as penalty relief, innocent spouse relief, and bankruptcy.  Taxpayers facing collection issues should retain competent tax counsel, who can review the facts of their case, explain the options, and formulate a workable strategy.

Coming soon

Changes to California state income tax deadlines

How to avoid the pain of tax penalties

Guest contributor San Jose attorney Steven L. Walker advises clients on tax controversies and litigation with the IRS, the FTB, and state & local taxing agencies. His clients bring him civil and criminal tax matters, including tax audits and appeals, litigation in U.S. Tax Court and federal district court, tax fraud, offshore/foreign tax compliance, and tax collection. He also advises clients on business matters.
Steven is an adjunct professor at the University of San Francisco School of Law in the LLM (Taxation) program, where he teaches Civil and Criminal Tax Penalties, and Bankruptcy Taxation. He is also a Fellow of the American College of Tax Counsel and a former IRS attorney with additional experience at the FTB Legal Division.  www.walk-law.com.

When You Can’t Pay Your Bills Because Of The Virus

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virus and money

 

The coronavirus has us locked at home where the  worry demons play unrestrained in our heads.

Money troubles cause us worry, in “good” times.  These are hardly good times.

As more and more of us are hit with shelter-in-place orders that keep us from work and our kids from school, we have even more time to worry about money.

And worry is debilitating.  In normal times, stress kills and the stress of COVID-19 dwarfs our usual worries.

I live and practice bankruptcy law in the San Francisco Bay Area: here,  we’ve been subject to social distancing, strategic shutdowns, and now, shelter-in-place orders for longer than most areas.

So here’s what I know and what I expect as a bankruptcy lawyer about the economic spillover from the fight against this virus.

Focus on the here and now

Staying safe and healthy right now is all that really matters.  Set aside issues of paying existing bills and long term commitments.  Those can wait.

Make food, medicine, and mental health your first concern.

If in doubt about your readiness for a jobless stretch, set aside, for the moment, payments on credit cards, medical bills, and student loans.

If possible, consider paying insurance premiums and car loans.

The very crisis that keeps you from your job keeps your creditors from their jobs, too.  While we’re still getting collection calls at my office, like most collector calls, they are toothless.

You are not alone

We see the usual money troubles as unique to ourselves:  shameful, defeating, personal.

Well hello, this time that isn’t so.  (It wasn’t so before, but that’s another rant.)  Millions of people in this country are facing the same situation.

Which is what feeds my expectation that government will craft remedies that mitigate the damage the country faces. And once those remedies start rolling out, we’ll all have opinions about the fairness and the adequacy of the remedy.

That grousing will give us something more to do.

But collectively, we all see the problem.  The problem is shared.  Your financial struggles will not stand out.

The help that’s coming

Lots of ideas are circulating about protecting families financially and pasting the economy back together.

California reopens signups for affordable health insurance

Right now, most of the solid action I see is at the state and local level.  Most pertinent for my clients, California state courts are closed except for the most essential health, safety and criminal issues.  So there’s not even a court available for creditors to sue you in.

For the longer haul, remedies under discussion include

  • Bans on evictions, foreclosures, and utility shutoffs
  • Restrictions on negative credit reporting
  • Mandated extensions of repayment on existing debt
  • Partial or total forgiveness of student loan debt
  • Low cost loans or grants for small businesses
  • Penalty-free late payment of income and employment taxes

Individual companies have offered free or reduced rate internet access; free online books and courses; on line exercise classes; and the list goes on.

Time will tell just what the collective remedies look like.  But, rest assured,  the crisis demands a fix.

And an election upcoming provides a feedback mechanism if the fix is slow, skimpy or spotty.

Law lumbers

In the best of times, legal actions take time.  So there is little immediate danger to you and yours in holding off payment on unsecured debts.  Don’t worry that the legal ax is about to fall if you miss a payment.

Law suits are expensive for the creditor and are typically the last resort of collectors.  Don’t fret that your unpaid bills will find you in court in the short run.  Where I am, the courts are barely open for much at all.

More concerning are the secured creditors with collection options that don’t require a judge’s involvement.  Think car repossessions and non judicial foreclosures.

If you can’t make your car payment, call AND write the lender and tell them how you are affected by the COVID-19 crisis and ask for relief.  I seriously doubt that, at the moment, creditors have a corporate answer to your request, but ask anyway.

And I never count on a phone call alone to make a record, much less make a difference to a creditor corporation.  Send a letter too and keep a copy.

I expect, but have not seen yet, a policy of tolerance on the part of car creditors.  What would they do with a fleet of repossessed cars? We can hope their repo guys are subject to stay at home orders, too.

As to foreclosures, there are glimmers of action to bar foreclosures while we are fighting the virus.  Residential lenders with loans guaranteed through Fannie Mae and Freddie Mac have been ordered to offer borrowers flexibility.  Stay tuned to see how that works out.

If your loan is not Fannie/Freddie, write the lender seeking relief, and stay watchful for developments.  Again, I don’t think lenders want to end up owning gobs of foreclosed homes.

Reach out and band together

It’s ironic that,  in a time when we’re told to practice social distancing, togetherness is critical.  It may be virtual togetherness, but it is good for our individual health and the strength of our communities.  Take care of your neighbors.

Stay strong, healthy, and hopeful.

More on the coronavirus crisis and money

Mortgage payments during the pandemic

Car payments while sheltering in place

Tax season postponed

California protects renters if…..

 

 

 

Mortgage Payments During California Shelter-in-Place

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mortgage in pandemic

Is my house at risk if I have no income due to coronavirus?

With economic activity at a dead halt due to COVID-19, California homeowners worry about next month’s mortgage payment.  And the month after that, for as far as the pandemic can see.

While it’s early days, and I fully expect broad governmental measures to protect homeownership, here’s what we know at present.

Federal protections from foreclosure

HUD has imposed a 60 day suspension of foreclosures and evictions on loans from the FHA.  Loans backed by Fannie Mae and Freddie Mac will also get a 60 day reprieve, with promises of further extensions if the circumstances require.

So, how do you know if Fannie or Freddie owns or guarantees your home loan.  There’s a tool, or rather two tools, for that.

Look up your loan.

Fannie: 

Freddie

Thus, California homeowners with existing foreclosure or eviction actions are protected for at least two months.  I fully expect that period will be extended.

Dealing with missed payments

What if  you were current when the shut-down was imposed but you can’t make next month’s payment?

What’s a loan servicer?

If  your loan is owned or guaranteed by Fannie or Freddie,  servicers have been directed to  offer flexible payments or a suspension of all payments for up to a year.

I anticipate federal regulations that will require servicers to offer loan modifications or payment extensions.  We can hope that the system has more teeth than the HAMP modifications following the Great Recession.

Not Fannie or Freddie?

It’s less clear, at this point, how lenders with loans that aren’t federally insured will proceed.

Early data suggests that lenders are prepared to be flexible.  We’ll have to wait to see if the federal government requires it some time down the road.

Check on line for the latest from your lender/servicer.

California 90 day grace period

Governor Newsom has reached agreement with 4 of the top five federally chartered banks who own or service home loans.  (Bank of America is the hold out.)

Two hundred state chartered banks and credit unions have joined the agreement

The banks agreed to waive mortgage payments for 3 month  regardless of income level.  No fees or penalties will accrue, and there will be no negative credit reporting.

Borrowers do have to document that their inability to make payments was traceable to the coronavirus.  Details on what kind of documentation is required varies among lenders.

For Californians, the most reassuring news is that California foreclosures take a long time.  While California foreclosures don’t involve the courts, the notice and cure periods mandate 4-6 months between the start of foreclosure and an actual foreclosure sale.

And the people who conduct foreclosure sales are in lock-down, too.

Write and call

For every debt that you can’t pay because of the shelter in place order, call the creditor to tell them how you are affected.  That’s what the creditors all say.

I say, follow up that call with a short letter repeating the facts of your situation.  Doesn’t have to be long or fancy.  Just get paper in the creditor’s hands.

Keep a copy for yourself.  Don’t count on the creditor to be able to file your letter and find it later.

Then you’ve made a record of your call and your situation.

Looking forward

I fully expect that we will see muscular, nationwide programs to keep people in their homes.  As a society, and an economy, no one benefits if masses of families lose their homes.

It will take time to work out just what those programs look like and how well they work.

But work it out we will.

Updated 3/30/2020

More

When you can’t pay your bills during pandemic

 

 

Explaining The Increase In Monthly Mortgage Payments On Long Established Loans

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mortgage payments jump

Lots of my clients lately are asking the same question:  why has my mortgage payment increased so much?

Interest rates are creeping up on variable rate loans, but not dramatically.

For most of those asking, it’s because the interest-only period of their home loan has run.

Borrowers forgot that lots of loans were written 10 years ago that promised low initial payments of interest only.

While it wasn’t a free ride,  it was cheaper than a fully amortized, 30 year loan.

Appealing, and the interest-only feature probably allowed borrowers to believe that they could afford the house they were buying.

But, time’s up on many of these loans.

And math tells us that when 10 years have passed and the remaining life of the loan is 20 years, it will take larger monthly payments to retire the amount borrowed.

Understanding your loan

The easiest way to see if the loan terms explains the payment increase is to pull out the promissory note.

Many of these notes have some description of unusual terms on the first page of the note, right under the heading “NOTE”.

It may say explicitly, “10 year interest only” or “interest fixed” or “variable interest”.  All of those are among the products peddled before the Great Recession.

The note should tell you when the “change date” on the loan is, and if variable, what index is used as a base for the interest rate calculation.

If you can’t find your note, you can ask the servicer for a copy using a Request for Information under RESPA.  Here’s a how-to for making a request.

Alternatively, you can ask your questions about loan terms directly from the servicer, again, using a Request for Information.

There’s no charge to make such a request, but the timeline for getting an answer can be as much as 30 business days.

If you can’t make the increased payment

If the increased payment is unmanageable, consider seeking a loan modification from the existing lender.

An alternative is to see what your options are to refinance the loan with a new lender, a new loan, and another 30 years to pay.

Be proactive.  The further behind you get on the existing loan, the less attractive you are as a borrower on a new loan.

Cutting The Car Loan Down To Size

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The car loan balance was grossly inflated;  my client owed twice the value of  her car, bought just a year ago.

Before bankruptcy “reform”, she could have stripped the loan balance down to what the car was actually worth.  In essence, the old bankruptcy law gave the lender what it would have gotten by repossession.

But not today.

Bankruptcy “reform” of a decade ago prohibits stripping down the loan balance on cars bought in the past 2+years.

What can Chapter 13 bankruptcy do?

Now that bankruptcy “reform” has shielded the car lender from the real world consequences of the car’s depreciation, the choices seem to be pay or surrender the car.

But not so fast.

Here in Silicon Valley we often retort: RTFM.  In a bankruptcy case, it’s read the underlying contract.

When I did, I found thousands of dollars worth of financed “stuff” that even bankruptcy reform didn’t require the buyer to pay in full.

Ride along as we point out all the excess expense that Chapter 13 carves out of the car loan.

The underwater trade-in

It seems that my client had traded in her previous car  when she still owed $9,000 on it.  The trade-in value (at least in this deal) was $5,000.

So the loan for the new wheels included the $4,000 difference between the old loan and the trade-in credit.  In bankruptcy circles, we call that “negative equity”.

The amount needed to pay off the old car, after credit for the trade-in allowance, was added to the price of the new car, in calculating the new car loan.

And thanks to a 9th Circuit decision called Penrod,  the negative equity portion of the car loan wasn’t entitled to protection from strip-down.

So, we’ve wiped out $4000 of the loan balance, or at least booted it out of the “must pay” category of debts in her Chapter 13, to the “maybe they get something” category of general unsecured creditors.

Gap insurance inflates the balance

As I read on, I found $900 worth of “gap insurance”.  This is extra insurance that covers the gap between the insured value of the car and the loan  balance in the early years of the loan.

Even in car loans not larded with all the add ons and extras found in this deal, once you drive the car off the lot, it is worth less than the purchase price and therefore, usually worth less than the balance on the loan.

If you total the car at the first stop light after leaving the dealership, regular insurance pays what the car was worth just before the accident.  Gap insurance will pay you the difference between the car’s insured value and the loan balance.

Without gap insurance, the car buyer gets a check for the car’s value and still owes the car lender.

But in Chapter 13, the car buyer is protected from that liability by bankruptcy law.

So, my client doesn’t need gap insurance, and we’ve reduced the must-pay portion of the loan by $900.

Service contract is extra

Last on the list of extras plumping the balance of the car loan was a $2000 service contract good for 75,000 miles.

My sense is that the terms of a service contract bought from the manufacturer of the car is carefully calculated to be profitable to the manufacturer.

After discussion, the client decided to reject the service contract and pay for repairs as needed.

We reduced the must-pay balance by another $2000.

Calculating the protected balance

When I added up the extras we carved out of the original loan balance, those extras were 30% of the loan amount.

So, we reduced the car lender’s secured claim that just recited the loan balance on its books  by 30% and got the amount of the loan that was really the purchase-money portion of the deal.  That will be paid in full through the Chapter 13 plan, regardless of what the collateral is now worth.

The car lender still gets a better deal in bankruptcy than it would if they repoed the car in the real world, but then, the car creditors had crafty lobbyists when bankruptcy “reform” was enacted.

Wait, there’s more

We aren’t done whittling this debt down to size, because Chapter 13 allows us reduce the interest rate paid on car loans to today’s market rate.

My client was paying a bit over 10% per year on the car loan.  In Chapter 13, she’ll pay 4-5%.

The ability to change the interest rate on loans secured by personal property, as opposed to real property, was not changed by bankruptcy amendments of 2005.

And this is just one reason I love Chapter 13.

Image courtesy of Daniel Olnes & Flickr.

When to file bankruptcy

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when to file bankruptcyShould I wait until all of my savings are gone to file bankruptcy?, the caller asked.

And he didn’t mean, until my net worth is greatly reduced; he meant, until my bank balance is zero.

One has to admire the resolve of those who propose to pay on debts that they can never repay up to the point where they literally have nothing.

My advice, of course, is “no”.

There is no point in making further payments when you can see you’re heading for bankruptcy.

Bankruptcy exemptions allow you to keep a collection of assets necessary for a fresh start.  In California, we have exemptions that will even shelter meaningful cash in the bank.

In Chapter 13, you can keep everything you own.

There is not even a requirement  that you be destitute or even insolvent to file bankruptcy.  You simply need to be willing to play by the rules of the bankruptcy chapter you choose.

Those rules are centered on making full financial disclosure.

When to consider bankruptcy

The short answer is probably now.  If you are reading this, you probably wonder if bankruptcy could help you out of a hole.  Instead of wondering, see a bankruptcy lawyer. (I’ll tell you a secret:  bankruptcy lawyers don’t bite.)

So often I wish clients had come to me earlier: before they borrowed against their retirement to pay credit cards; before they took bad home loans that imperil their home; before they borrowed from one credit card to pay on another.

Don’t take big financial steps til you see a lawyer

The right time to consider bankruptcy is when you suspect that you can’t really repay your debts in full in 3-5 years, on your own.

Or, when the stress of being in debt interferes with your health or your relationships.  Or, when you have no reserves should things get worse. 

Stress kills

Seeing a bankruptcy lawyer doesn’t commit you to filing.  It just arms you with information about what your options are.

Most people who see a good bankruptcy lawyer are surprised that bankruptcy relief is relatively simply and very effective for almost everyone.

Information is power….become more powerful.

Read on

Picking a bankruptcy lawyer

Alternatives to bankruptcy

What you keep through bankruptcy

 

 

 

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

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