Northern California Bankruptcy Lawyer

On The Bankruptcy Soapbox

The Soap Box

Collection Suits and Court Dates

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Those in financial difficulty are frequently not operating at their peak.  I know that.

But for the life of me, I can’t understand how the recipient of a summons and complaint from a California court can read the papers and absorb only that they have a “court date”.

Arghhh!

How California lawsuit works

The basic outline of a law 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 the person served plainly that they must file a typewritten answer to the complaint within 30 days of service.  Fail to file an answer and the other side may get a judgment for the relief prayed for, which is usually money.

Served along with the complaint is a notice of case management conference on a given date.  The CMC is 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.

You must 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?

Stress MAKES you stupid

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.  If you agree that you owe the amount of money shown in the prayer of the complaint, there may be no need for an answer and a defense.

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 to the courthouse.

Lawsuit is a wake-up call

Often, the filing of a lawsuit is just the most dramatic evidence that your finances are scrambled.

Consider whether you spend your energies fighting this one action, or whether you need a more global remedy like bankruptcy.

Bankruptcy and the alternatives

Image courtesy of Pixabay.

Why Even Rock Solid Marriages Need A Prenuptial Agreement

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ring-260892_1280_optPre nuptial agreements aren’t just for the rich or  mid-life marriages.

In California, pre nuptial agreements do far more than provide a blueprint for division of property at divorce.

A prenup can earn its keep for decades in marriages where divorce never enters the picture.

Why?

It protects the assets of the marriage from outsiders.

A prenup can limit what assets the creditors of one spouse can reach to satisfy a debt.  Let’s see how that works.

What’s a prenup

A prenuptial agreement is a contract between two parties, made prior to their marriage, that controls the ownership, management, and division upon divorce, of their assets and income.

After the divorce case of San Francisco Giants Barry Bonds testing his prenuptial agreement that denied his wife any part of his earnings during marriage, California prenups must meet a series of tests designed to make sure that the agreement was made knowingly and preferably with advice from a lawyer.

The California Supreme Court upheld the Bonds prenup, even though the wife had no lawyer, was disadvantaged by the agreement and had it popped on her on the eve of the wedding. That decision sparked changes to the law  to make more certain that both parties understood the arrangement and its consequences.

My interest as a bankruptcy lawyer in prenups is rooted in how a pre nup works during the marriage.

A prenup’s value lies in overriding the California  presumption that everything acquired during marriage is community property.

Community property is vulnerable

Community property is liable for the debts of either spouse incurred during the marriage.

Any debt.  Whether the other spouse knows about it or not.

Worse, the community property is liable for the debts of either spouse that they incurred before marriage.

In the absence of an enforceable agreement, California law makes everything acquired during marriage community property, including the wages of each spouse.

The result is that one spouse can find their wages garnished to pay a judgment their mate without any involvement from the spouse whose wages are garnished.  Ouch.

Cut exposure in half

Too often, the full ramifications of community property and the claims of creditors aren’t obvious until a business deal goes bad, or there’s a horrific accident, or the student loan collectors come round.

Then spouses see that everything they’ve acquired and their income going forward is liable to pay a crushing debt. Or at risk in a bankruptcy.

When giving isn’t a virtue

And often it’s too late to do anything that’s legally effective to move away from community property.  Post nuptial agreements not to have community property are subject to being invalidated as fraudulent transfers.

Fraudulent transfers include disposing of property without getting equivalent value in return , like giving stuff away.  Fraudulent transfer law also applies when you take actions after a debt is incurred that are intended to make it hard for an existing creditor to collect what he’s owed.

If a transfer is fraudulent, a creditor can invalidate it and reach the assets you were trying to insulate.

So, if you wait to reconsider community property until there’s a real need, it may be too late.

Weighing the risk

If you elect to alter the results of the community property system to limit exposure to creditors, you have to live with the consequences should the marriage dissolve.

A California family court has jurisdiction over the community property of the couple, but not over their separate property.  And separate property is what results by reason of a pre nup.

A family judge could still award family support and can also divide the family home even if held as separate property.  But other acquisitions may be beyond the reach of the family court by reason of how title to the asset is held.

So, a prenup is not without its own risks.

Who said marriage is easy?

When $400 Emergency Pushes You Over The Edge

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The Federal Reserve reported that 40% of Americans couldn’t meet a $400 emergency without borrowing.  A significant slice of them couldn’t pay it at all.

So, a Bloomberg economist devoted his column to deconstructing how the press and political figures, in his opinion, misused that finding.

My God.

The guy was too caught up in quibbling about how the numbers were summarized to grapple with the human story beneath the numbers.

He took comfort in the fact that only 12% couldn’t borrow $400.

Emergency borrowing

What about those who could pay $400 by borrowing?

  • Where are they if another $400 emergency comes along?
  • If they didn’t have $400, what has to give in their budgets to pay back the $400 that they borrowed?

Payday lenders charge an average of 400% interest for a two week loan.  While touted as a vital service to low income communities without access to bank loans, payday lending is too often nothing more than financial quicksand. 

Access to high-cost credit: Federal Reserve study on its effect

Borrowing from family and friends has its own social perils. And it assumes that family and friends are better off than the borrower.

From where I sit in Silicon Valley, a huge swathe of America is living on the financial edge.

The shear cost of day to day living consumes their income and their energy.  Too often expected to individually fund health care, college and retirement, they find even multiple jobs, or the gig economy doesn’t allow a financial cushion.

What a waste of economic expertise to focus on the use or misuse of numbers and not address why so many are financially vulnerable.

 

10 Must-Know Things About Money Judgments

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judgment at law

What does it mean when a judgment is entered against you?

It’s not the end of the world, but it has serious financial repercussions.

Here are 10 critical things you need to know about legal judgments.

 

    • cup-1010916_640_optJudgment picks a winner in a civil lawsuit.

      A judgment picks the winner in a judicial contest.  It is the determination of which side prevails, how much money is owed from the judgment debtor to the judgment creditor.

    • sheriffs-star-160082_640_optA judgment creditor can use  law enforcement to collect

      Having won a judgment, the creditor can levy bank accounts, garnish wages, and install a receiver in a business in order to collect the debt.  The creditor can make you show up in court and testify about your assets and their locations.

[Read more…]

Has Your Social Security Number Been Suspended?

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social security scam

 

The latest variety of tax scam picked the wrong target when they called my fellow bankruptcy lawyer Wayne Silver.

Your social security number has been suspended, claimed the caller.

Having no identity is scary. What’s a guy to do without a Social Security number?

It’s sad that we are reduced to needing a number to validate who we are.  But without a Social Security number, an American is virtually no body.

And that’s what the scammer counted on when he called Wayne, and doubtless thousands of others.

The phone message claimed that because of “suspicious activity” on his Social Security number, it was being “suspended”.

If Wayne wanted to know more about the situation, he could call the number provided.

And the situation must be urgent, because the scammer called 5 times in 24 hours.

Social Security numbers don’t get suspended

None of what the scammer claimed was true.  Except that they wanted Wayne to call so they could GET his social security number, or scare him into sending them money directly.

Wayne is hardly your average consumer.  He’s a veteran bankruptcy attorney and white collar crime litigator.  So, he wasn’t scared.

He called me into his office to listen in.

But lots of people are scared by these scam calls.

IRS lists latest identity scams

The IRS put out an update to its list of scams.  This supposed “suspension” of your Social Security number topped the list.

My rule of thumb is that no one who calls you claiming to be from the government is real.  The government is essentially wedded to paper.  They NEVER make first contact with an individual by phone.

Hang up, confident that your Social Security is safe, at least from someone on the phone.

More

Elders fall victim to their phone

Pay up or go to jail: another scam

What You Left Out Of Your Bankruptcy Schedules

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magnifying_glass openclipartOne of the first questions a bankruptcy trustee will ask you at the hearing in your bankruptcy case is:  did you read the schedules before you signed them?

The obvious, and expected, answer is YES.

And if your answer is “yes”, then the trustee can conclude that you stand behind the information that the schedules contain.

You signed them under penalty of perjury, after all.

But did you really read them?

Let’s talk about it.

Get your schedules right

Schedules is bankruptcy lingo for the lists of assets, creditors, budgets and financial history that make up the initial bankruptcy papers.

Quick guide to bankruptcy lingo

Your right to a discharge of dischargeable debts is based on making full disclosure about your financial situation in those schedules.

That disclosure starts with the official forms that make up the schedules.  They are one-size-fits-all.  So the questions include inquiries about  your airplanes and the livestock you own, things that don’t often appear on my clients’ bankruptcy schedules.

The schedule of personal property assets, Schedule_B ,  asks 35 questions about what you own.  Unless you read each question carefully and give thought to your answer, it’s all too easy to carelessly omit assets.

Assets are more than things with a physical presence:  assets include rights in a probate estate, participation in a class action suit, and rights to a tax refund.

“Don’t count your chickens” is bad bankruptcy advice

The most frequently omitted asset in my experience is legal claims.  For bankruptcy purposes, a legal claim isn’t just the lawsuit that you’ve already filed.  It’s the right to assert a claim based on events that have already happened.

Whether your attorney asks you to fill out a questionnaire or interviews you for the information necessary to fill out the forms, the exercise merits your best efforts.

How to review schedules before signing

Unless you are keen on spending some extended time as a guest of Uncle Sam on a conviction for perjury, or losing your bankruptcy discharge for recklessly filing untruthful schedules, it pays to know how to review the draft schedules your attorney has prepared.

Don’t limit yourself to reviewing the information that has been typed into the form.  Look for what isn’t there, too.

That’s a lot harder, because it requires that you read the questions on the form and consider whether you really have nothing to report in response to the question.

Believe me, though, it’s worth the effort.  You can catch things you forgot to tell your attorney.  You may catch creditors or assets that were somehow omitted from the schedules.

You want to catch any mistakes before the schedules are filed.  Careless mistakes on the papers  casts doubt on the accuracy of the rest of your schedules.

Making corrections at the first meeting of creditors

All is not lost if you remember something after your schedules are filed that should have been included.

Another one of the trustee’s standard questions at the first meeting of creditors is “are there any errors or omissions in your schedules you want to bring to my attention”.

Take up the trustee’s invitation to make any additional disclosures needed to make the information in the trustee’s possession complete.

You want to take the initiative to correct the record.

Give it your best effort

The effort required of you to get a bankruptcy discharge isn’t very great.  The most important of the things you must do is file accurate schedules.

After that, most bankruptcy cases are a piece of cake.

More

Rules for appearing at the first meeting of creditors

What if you skipped a creditor

List it or lose it:  the price of nondisclosure

How exemptions work

Image courtesy of openclipart.Find

 

List It Or Lose It: Why It’s Critical To Tell All

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bankruptcy disclosure

Transparency is the essential ingredient in bankruptcy. The name of the game is disclosure.

In exchange for full disclosure in your bankruptcy papers of assets , debts, and financial history, you get a discharge.

Do it right, everyone with notice of your case is bound by the discharge.

Disclosure costs you nothing and it insulates you from charges that you’ve has concealed property of value or otherwise been less than candid with the court.

That lack of candor can cost you big time, from the loss of confidence in your filings by judge and trustee; to charges of perjury or criminal fraud; to loss of the discharge.

This is serious stuff.

Pay attention

My questionnaire for clients says repeatedly that you must disclose all of your assets, yet I get back questionnaires showing no clothing (did they come to my office in a barrel?), no bank accounts, no furniture, no car, etc.

Sometimes, the client doesn’t  have the kind of property in question.

But more often, they made assumptions. They assumed that 1) if the account was overdrawn, they didn’t have to list it; 2) if the clothing was worth little, they didn’t have to list it; 3) if the bank had a lien on it, they didn’t have to list it.

The erroneous assumptions go on.

A is for Assumptions

I declined representation in a case this week that promised a five figure retainer in large part because I believed that I could not get the prospective client to take seriously the need to be open and candid with the court.

If you want to keep any asset, tangible or intangible, after the bankruptcy, list it in your schedules.

Throwing away assets

My colleague lawyer Jay Fleischman wrote about the consequences of failing to disclose the right to sue for a violation of consumer law in the bankruptcy schedules.

There’s a sneaky legal doctrine used by lawyers on the other side of your lawsuit:  judicial estoppel.  It boils down to this:

if you said in the bankruptcy schedules that you didn’t have such an asset, you are barred later from claiming you have a legal right that you didn’t list.

It usually doesn’t matter if the omission was innocent or calculating.  The result is too often forfeiture of the claim.

List everything

That way, you also get to keep the discharge, the real prize in this exercise.

More

What’s included in bankruptcy

Find what’s missing from your schedules

What to do if you missed something

Stupid Moves Before Seeing A Bankruptcy Lawyer

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before bankruptcy

Don’t tidy up your financial affairs before consulting a bankruptcy lawyer.

Your current mess may present opportunities to plan your bankruptcy for a better outcome.

You may waste money or lose bankruptcy options when you make last minute changes to your situation without understanding how that situation plays out in bankruptcy.

You’ll have the widest set of options for a fresh start if your lawyer sees the situation as it is today.

What looks to you like complexity and disorder may look to your bankruptcy lawyer as opportunity and advantage.

The high cost of financial housecleaning

My heart sinks when a new client tells me that they’ve just paid off the loan their parents made them before seeing me.

Why your bankruptcy lawyer shouldn’t fight for you

Or borrowed against their retirement to fund debt management.

Or paid off the taxes so that all the remaining debt is credit cards.

For different reasons in each instance, those actions complicate a bankruptcy or squander assets that could have been saved in bankruptcy.

Payments to family

Paying off a loan from family seems instinctive.

We want to take care of those closest to us.  Sometimes, paying off help from family is driven by the desire to hide a bankruptcy from them.  Sometimes, it’s the desire to make sure they get whatever assets you have before you submit to the scrutiny of a bankruptcy trustee.

But more likely, paying off a debt to an insider (that’s bankruptcy lingo for close relatives, real or business related) hurts more than helps.  The bankruptcy trustee in a Chapter 7 can sue insiders who get paid during the 12 months before the bankruptcy filing to recover the money.

The theory of recovering preferences is to make a fair distribution of your assets to all creditors, not just the ones you favor.

Often, the exemptions that are available in bankruptcy will allow you to keep more money than you expect.  You can repay that debt to Mom after the filing, when it has no adverse consequences to Mom. The California grubstake (or wild card exemption) protects about $28,000 in any kind of property, in addition to other exemptions for specific kinds of property.

So, hold on to your checkbook, until we’ve talked.

Settlements before bankruptcy are wasted

The saddest thing I’ve seen recently was the family that soldiered through a five year debt settlement program before we met.  They had paid tens of thousands of dollars to creditors, but didn’t realize that not all their debts were included in the plan.

We had to file bankruptcy for them despite their heroic efforts to pay their debts.  They got no credit or advantage from the money they spent retiring credit cards while their property taxes and student loan debts fell into default.

The better situations are when clients ask if they should accept a settlement offer from a collector before filing.  There, at least, I get to ask what benefit they get from paying that money, money that could otherwise go to funding an IRA or paying down student loans?

In general, your bankruptcy is no simpler or cheaper or less damaging if you have a few creditors as opposed to many creditors.   If the situation requires bankruptcy, reducing the number of creditors or amount of the debt doesn’t benefit you at all.

Tax debt has its uses

While it isn’t generally thought to be a good thing to owe money to the tax collector, it may be an asset if your income is above the median for your state.

The means test is a formula that is supposed to weed out those families who make too much money to file Chapter 7. One of the ironies is that one of the allowed deductions in figuring whether you have too much income to file Chapter 7 is that you can deduct taxes you owe from the income.

It’s the same with mortgage arrearages and property taxes on your home.

These debts are useful deductions in getting a client into the bankruptcy chapter of their choice.

Pay it off before we meet and I have fewer tools to shape the means test.

Put down that broom

So, resist the temptation to clean up your finances before you meet with a bankruptcy lawyer.  Don’t sweep debts under the carpet or out the door before you understand the bigger picture.

Make any advantageous changes in consultation with your lawyer.

More

What your lawyer can’t tell you

The secret alternative to bankruptcy

Cheat sheet for interviewing a bankruptcy lawyer

 

Image courtesy of Flickr and Spengy. 

 

Debt Buyers Barred From California Courts

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old debtZombie debt may have met its match.

California law now bars the door to the courthouse to a debt buyer holding a claim beyond the statute of limitations.

 Civil Code § 1788.56.  That’s been the law since January, 2014 as to debt acquired after that date.

What’s a statute of limitations

The statute of limitations draws a line, based on the age of the debt, beyond which a creditor may not get a judgment on that debt.  But the critical weakness in California’s statute of limitations is that the person sued had to answer the lawsuit and claim its protections.

The burden was on the person sued to appear and defend.

Too often, the debtor didn’t know that and the collector got a judgment on debt that should have been unenforceable.

Who’s locked out of court

No longer, as to purchased, charged-off debt.

If the party holding the debt bought it from someone else, after the original creditor had charged the debt off of its books, the buyer can’t file suit on the debt after the statute runs.

And a check of reported appellate cases in California in the five years since shows no cases appealed under this statute.

What it doesn’t tell us is what’s happening at the trial court level.

Since this statute was intended to deal with the kind of suit where the consumer never appeared in court and the debt-buyer won by default, there’s not likely to be an easily located record.

But, there’s more to the law than just a bar to filing suit.

Required information about debt

A debt buyer may not even contact a person about a consumer debt unless the debt buyer has in its possession

  1. Proof that it is the sole owner of the debt
  2. Balance of the debt at charge off and a breakdown of charges added since charge off
  3. Date of default or last payment
  4. Name, address and account number used by the original creditor
  5. Name and address of the account debtor from the original creditor’s records
  6. Name and address of all entities that purchased the debt after charge off

Scope of consumer protection

These new provisions became part of California’s Rosenthal Fair Debt Collection Act.  These additions are to be called the Fair Debt Buying Practices Act.

Effective January 1, 2014, they apply to debt bought or sold after that date.  At first, you may be left to guess whether a debt buyer calling about old debt is subject to these restrictions.

To be covered by the FDBPA, the debt must be part of a package of charged-off debt.  Old debt that slips into a portfolio of largely claims that have not been charged off is not subject to this act.

That mystery term, charged-off, gets a statutory definition:

"Charged-off consumer debt" means a consumer debt that has
been removed from a creditor's books as an asset and treated as a
loss or expense.

A debt may be charged off of the original creditor’s books and still be legally enforceable, if the statute of limitations hasn’t run.

Courts must demand proof

Another ground breaking provision requires that no judgment be entered, even if the debtor didn’t answer the complaint, unless the collector has supplied a sworn statement as to compliance with the elements of the FDBPA. Civ. Code 1788.60.

The collector must also provide a copy of the contract sued on, authenticated by a sworn statement.

This will be interesting to watch as, often, even the original creditor can’t produce a copy of the contract.

Who will be available to the debt buyer to vouch for the contract? And will the courts monitor robo-signed affidavits?  And impose consequences for lying?

Damages for violation

A debt buyer who violates the statute is liable for actual damages caused by the violation, including the amount of any judgment obtained against the individual;  statutory damages of no less than $100 and no more than $1000; and reasonable attorneys fees and the costs of the suit to enforce these rights.

The debt buying trade press forecasts that the California standards will be applied to all portfolios of old debt sold by businesses.  No more, they say, of getting just the account debtor’s name, address, Social Security number, balance and account number on a computer disk.

Brave new world

The Fair Debt Buying Practices Act is a worthy step forward in preventing abuse by purchasers of zombie debt.

I’m particularly encouraged by the provision outlawing filing suit on debt that is time barred.  I hope to see a like provision applied to debts still in the hands of the original creditor.  Otherwise, the application of the statute of limitations are restricted to those individuals savvy enough to file an answer to the suit.

More

Zombie debt

Action plan if you are sued

When discharged debts rise from the dead

Image courtesy of Flickr and Lendingmemo.com

 

Doing The Means Test Yourself

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test-361512_1280_optI keep encountering posts on internet bankruptcy boards from individuals who have “filled out the means test” and then proceed to announce their conclusions.

Given the uncertainties in the legal community about how to apply the means test, I can’t imagine a non lawyer learning anything reliable from trying to do this themselves.  As a certified bankruptcy specialist, I end up thinking, and rethinking, treatment of income and expenses on the means test.

Yet the results of the means test determine whether you get to choose which chapter of bankruptcy you want to file, or how much you have to pay if you file Chapter 13.

Means test rat’s nests

The tricky issues include how to deal with income from non filing spouses; from roommates or extended family members; shared custody situations; changing income issues, and how to handle business expenses for the self employed.

One bankruptcy appellate panel recently decided that the judges who drew up the form did it wrong!  That really helps.

You have to parse out income “received” but not “derived” during the look-back period and figure out how to report children where custody is shared.

Then there is the dispute on the deduction side about ownership allowances for paid-for cars; operating allowances for older cars; debts associated with property you’re surrendering, and just what part of your telecommunication expenses go on the form.

And how do you treat the costs of delayed health care needed in the future?  Do you divide that cost over the life of a Chapter 13 plan, or over 12 months, or….?

Can you swear to that?

I cringe when I ask a client to sign this form, as they cannot possibly validate all of the entries on the form, given the complexities of the law.

While I won’t say “don’t try this at home”, I am certain you should draw no conclusions about the means test and your eligibility for Chapter 7 based on your efforts to take the test.

Get an experienced bankruptcy lawyer involved.

Read more

Means Test Misunderstood

Means Test Is Paper Tiger Here

Means Test In Chapter 13

Image courtesy of Pixabay.

643 Bair Island Road
Suite 403
Redwood City, CA 94063
Phone: (650) 694-4700

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