Northern California Bankruptcy Lawyer

On The Bankruptcy Soapbox

The Soap Box

Five Tax Tips For Two Cents

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8328967338_37e260ff6b_h_optTax season approaches.

There’s a surprising degree of overlap between bankruptcy and tax I’ve found over three decades as a bankruptcy lawyer.

Here’s my two cents on what I know about taxes.  It’s not a lot, but what I know is both simple and critical.

File those tax returns

Lots of folks who end up in my office discussing bankruptcy held off filing their returns because they figured they couldn’t pay the tax that would be due.

Bad decision.

Without a return, taxes never die

The IRS will not descend on you the week after you file a return with tax due.  They’re still opening envelops.

But filing a return gets all kinds of time periods running that may benefit you:  the 3 years til the taxes are dischargeable in bankruptcy;  the 10 years til the tax collection statute runs.

Don’t pay tax on discharged debt

If your debts were discharged in bankruptcy last year, that discharge has no tax consequences.

The Internal Revenue Code specifically excludes from taxable income any debts forgiven in bankruptcy.

Cancellation of debt is tax free

You may get a 1099 reporting the cancelled debt.  The creditor whose debt is forgiven is required to do so.

It’s up to you to assert that there’s an exception to tax.  And there’s an IRS form to rebut any tax consequences.  Get it and file it.

Claim deductions for Chapter 13 payments

If you’re in a Chapter 13 that catches up arrearages on real property loans, claim those payments as deductions of your own.  Just because the trustee writes the check, it’s still you paying the mortgage interest in that payment.

How to find and claim the deduction

The concept here goes beyond mortgage interest.  If the expense was deductible had you written the check, it’s deductible if the trustee pays it.

Get the trustee’s disbursement records in your case from  the trustee’s web site and get to deducting.

If you owe tax, fix your withholding

The return to be filed this spring can tell you if you are withholding enough money to pay your taxes.

If there’s a big number on the bottom line of the return for last year, and this year looks similar, increase your withholding now.

What Goldilocks knew about taxes

And if you think you can’t pay taxes as you go and support the rest of your living expenses, you need to look hard at the big picture.

It’s generally a poor decision to short the feds so you can pay AmEx or Visa.

Amend old returns if you missed something

If you missed a deduction or otherwise overpaid your taxes in a previous year, you have only three years to amend that return and claim a refund.

Time running out to claim prior year tax breaks

Lower income families often miss the fact that they get a tax credit (that’s real money, not just a deduction) under the Earned Income Tax Credit.  Find out if you are eligible.

Mortgage Lenders Stop Lurking And Start Foreclosing

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old mortgage defaults

 

I’m re-upping this post from nearly two years ago because I’ve seen a surge in foreclosure notices on old and irregular home loans.  There is equity now in those homes, so they are at risk of  foreclosure.

They hadn’t paid the line of credit loan on their home for seven years.

All was quiet for the longest time until a notice of impending foreclosure was served last week.

How foreclosure works in California

In a rational world, you’d think the lender would have noticed some time over those seven years that there were no monthly payments.

You’d also think this was an aberration.

But last month, in another of my cases,  a lender moved for relief from the automatic stay in a pending Chapter 13, citing missed payments from four years ago.  The default was $38,000 before the lender took action.

Time doesn’t heal this wound

Unlike credit card debts or unsecured loans, debts secured by your home don’t hit the statute of limitations quickly.  In California, the statute on a mortgage is 30 years.

So all that ignoring this debt and hoping it would go away has done is increase the fees and expenses that the lender is legitimately due.  And unless the loan is brought current or modified, these homeowners face foreclosure.  Or expensive litigation about defects in the underlying loan.

What’s with mortgage servicing

When you get a notice from your lender to make payments to a different company, it’s easy to conclude that your loan has been sold to a new owner

Probably not.

More likely, the owner of the note has contracted with a different outfit to manage collection on the note.  The servicer gets a slice of the fees for itself out of the deal.

My take is that mortgage servicing is a sorely troubled industry.

The CFPB continues to try to improve performance of those who hold our homes in their hands.  Prosecutors continue to achieve large settlements with servicers on account of their misdeeds.

In just the bankruptcy context, I see servicers day after day whose numbers never match.  The story their numbers tell is wildly different in the proof of claim from the motion for relief from stay.

And try to refinance or sell and you’ll get another set of numbers that don’t add up.

When the lender comes out of hiding

No matter how great the sins and inadequacies of the loan servicer, you still have a serious problem if you haven’t paid for a long while on your mortgage.

California is a non-judicial foreclosure state.  That means that the lender or the servicer doesn’t have to prove up the correctness of its numbers to sell your house at a foreclosure sale.

Your options include:

  • Pay the back payments
  • Seek a loan modification
  • Use Chapter 13 to catch up over time

What you can’t do, if you expect to keep the house, is wait til the last minute to look for a solution.

More

The slumbering second mortgage awakes

California foreclosure

Getting real information from the servicer

How Chapter 13 works to save homes

Your Bankruptcy Discharge Has Teeth: Bite Back

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bankruptcy discharge has teeth

Your bankruptcy discharge is more than a piece of paper.  It’s a federal court order prohibiting action to collect the discharged debt from you.

And it has teeth.

When creditors ignore a federal court order, it has unpleasant consequences.  Or should have consequences.

So, my call to debtors is to stop being prey to unscrupulous debt collectors.

Bite back.

Discharge binds all creditors

All creditors who got notice of your bankruptcy are subject to the discharge injunction, with a few exceptions.

That’s why it’s so important to list everyone who thinks you owe them money in your bankruptcy schedules. Getting your schedules right.

The discharge is a public record, retrievable on PACER  by anyone who is interested.

In short, there is no excuse for the creditor (or anyone who bought the debt from your creditor) to attempt collection of debts predating your bankruptcy.

And creditors who try to collect have effectively given you the right to sue them at their expense.

Here’s hoping that more debtors harassed by creditors after their bankruptcy will march into court for enforcement of their right to a fresh start.

When collector calls after bankruptcy

Whether it’s a debt buyer or the original creditor, it seems to be inevitable that you will encounter a collector after your bankruptcy case is over.

When that happens, make sure you tell the collector about your bankruptcy discharge.  To have a legal remedy for the violation of the discharge, you will need to prove that the collector knows about the discharge.

  • Tell them.
  • Make notes that you’ve told them.
  • Write them.
  • Keep a copy of your letter.

They’ve had their one cost-free mistake. The next contact will cost them.

The debt buyer can’t hide behind the fact that it wasn’t the listed creditor in your schedules.  If the debt buyer bought a discharged debt, he’s gotten nothing of value.

But again, you need to point out to the collector that the debt is gone by reason of the bankruptcy discharge.

Any further collection after learning of the bankruptcy spells trouble for the collector.

Suing to enforce the discharge

The doors to the bankruptcy court are always open to debtors whose discharge is being ignored.  And at the end of the day, prove your case and the collector pays your attorney’s fees.

How much more than your attorneys’ fees you recover depends on your ability to show how the discharge violation hurt you.

  • Lose sleep
  • Get turned down for a loan
  • End up in the doctor’s office
  • Take a credit report hit
  • Feel helpless and hounded

Those are just some examples of the damages you might experience.

9th circuit bankruptcyThe discharge is enforced by motion here in the 9th Circuit, which means you can get a hearing before the judge much faster than if you’d filed an adversary complaint.

The motion is a contested matter under bankruptcy rules.   That entitles you to discovery from the other side if you want or need it.

Most motions are heard and decided on the written pleadings and declarations. Nothing prevents a bankruptcy judge from taking live testimony.

Stop suffering in silence

If creditors who were discharged in your bankruptcy case continue to hound you, do something.

Tell your bankruptcy attorney.  Bring in the evidence about your contacts with the creditor.

If your bankruptcy attorney doesn’t handle contested matters, ask for a referral to an attorney who does or shop for a local attorney willing to enforce your rights.

It’s my conviction that until it costs creditors to ignore the discharge, they will continue to do so.

And judges don’t know this is a problem until we tell the story in their courtrooms.

So, make them toe the line or pay for the failure to do so.

Debtors beat big banks in California case

What to do after your bankruptcy discharge

Debts that survive the discharge

 

 

 

 

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.

What Causes Bankruptcy?

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Cure TargetI was playing in my head with a piece I was writing for consumers about the bankruptcy decision.

I caught myself thinking about “whether the bankruptcy was caused by mortgage debt or ….” .

And I hauled myself to a halt.

How did the words “bankruptcy” and “cause” get linked in my head?

In my head, for Pete’s sake?

Bankruptcy is not caused by insolvency, it’s a cure for insolvency.

Debt in excess of assets, particularly liquid assets, causes insolvency.

Where debts come from

The real question should be:  how did the debts arise?

The trite explanation for debt is irresponsible spending and lack of financial self control.

Not in my experiences of the past two decades.

Instead, financial distress most often comes from job loss; ill health; divorce; and multigenerational family issues.

Add to that, the ridiculous cost of housing where I practice in the Bay Area.  Too many folks subscribed to the idea that home ownership is an essential to be really middle class.

Bankruptcy is a cure

If inability to pay your debts is the disease, bankruptcy is the remedy.

The question for families is whether they avail themselves of a freely available, legal remedy for that situation.

Or, do they continuing treading water with respect to their debts until there is a further crisis.

So, for purposes of the blog I was constructing, the  correct construction juxtaposes whether the financial distress was caused by mortgage debt or some other cause.

My message is that bankruptcy is as much a beginning as an end.

It ends the distress of being financially incapable.

It is the beginning of an opportunity to realign spending, to move beyond the misfortunes of the past, and to address the challenges of the present and the future.

Families need cash reserves; they need retirement savings.  Families with children need to save for college if they are to escape a further round of incapacitating debt.

My mantra becomes:  clear thinking and emotional courage cause bankruptcy.  And the debtor is better for it.

More

Is bankruptcy right for you?

Life after bankruptcy

What should bankruptcy cost

Image courtesy of openclipart.org

What Creditors Of PG&E Need To Know About Bankruptcy

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Listen up if you’ve done business with PG&E, now or in the past. The PG&E bankruptcy affects you in varying ways, as we explore below.

You have some important decisions to make, such as:

  • Should you keep doing business with PG&E? If you do are you going to get paid? When?
  • What about money PG&E owes you now – when and how will you get paid, and how much will you eventually get?
  • What about the contract or commercial real estate lease you have with them?
  • Or the union contract you are working under.
  • Should you sell your claim?

If you are a customer: yes, you have to pay your bill and no, the lights aren’t going out – unless of course you don’t pay your bill.

We can’t answer all the possible questions about the PG&E bankruptcy here, but we’ll provide an overview and help you decide if you need a lawyer.

PG&E is back in bankruptcy court

PG&E filed for Chapter 11 bankruptcy on January 29, 2019 in the U.S. Bankruptcy Court for the Northern District of California, San Francisco Division.

PG&E’s bankruptcy cases have been assigned to Judge Dennis Montali, to be jointly administered under Case No. 19-30088. Note that Judge Montali presided over the first PG&E bankruptcy 18 years ago.

The initial filing lists $51.7 billion in debts and $71.4 billion in assets.  That’s relevant because, on these numbers, PG&E is solvent and a Chapter 11 plan should pay everyone with an allowed claim in full.

There is a wealth of information available on-line about the PG&E case. For starters, check out and bookmark the PG&E bankruptcy page.  This is a Court approved webpage where you can get basic bankruptcy case information, including

  • view and download documents from the Bankruptcy Court docket,
  • learn about how and where to submit Proofs of Claims (more on this later), and
  • get important information and dates.

For additional information about the reorganization process, including press releases and FAQs, you can also visit PG&E’s page on the case.

What’s a Chapter 11 bankruptcy?

Chapter 11 bankruptcy allows a company to restructure its financial obligations while keeping the lights on (pun intended, apologize, moral imperative).

Almost all debts and financial obligations owed prior to the bankruptcy filing (“Pre-Filing Claims”) are paid through a Chapter 11 plan (“Plan”) that  PG&E is expected to put forth as the bankruptcy case moves forward.

Prior to a Plan being approved by the Court (that approval is called “confirmation”), PG&E will operate as a “Debtor-in-Possession” under the supervision  of the Bankruptcy Court. That means PG&E can continue to do business sort of as usual.

Creditors and vendors can continue to deal with PG&E with some assurance that claims for services rendered and good delivered after the case was filed will be paid timely (called “Post-Filing Claims”). For example, the Bankruptcy Court entered an Interim Order on January 31st authorizing PG&E to pay certain Pre-Filing lien claimants in the ordinary course of business (up to a maximum of $25,800,000.00), and granting administrative priority status to claims for deliveries to PG&E after the bankruptcy filing on Pre-Filing orders allowing them to be paid in the ordinary course of business.

But (and there are a lot of “buts” in Chapter 11),  there are strings attached to these payments, and PG&E can challenge them at a later date.

Also, depending on the nature of the services rendered, goods delivered, and contracts and leases covering such goods and services (which may be “executory contracts”), they may or may not fall under the Interim Order. So, while PG&E may tell you they will gladly pay you on Tuesday for a hamburger today (does anyone remember J. Wellington Wimpy?), care should be taken to make sure.

What’s the plan?

PG&E has the exclusive right to propose a Plan until May 29, 2019, and the exclusive right to have that Plan approved by the Bankruptcy Court until July 28, 2019.

After that date, other groups or creditors can propose a competing plan.

Creditors’ and shareholders’ claims and interests will be sorted into classes under the Plan.  Allowed claims and interests get to vote on whether to accept the Plan.

The Plan will be confirmed if the creditors in classes impaired by the Plan  approve the Plan by at least 2/3 of the dollar amount of allowed claims voting in each class, and 1/2 of the number of the allowed claims voting in each class. Governmental regulatory agencies will also have a say on whether or not the Plan is approved, which is what makes this bankruptcy case even more complicated than the usual large Chapter 11.

Who gets a vote?

Chapter 11 is complex, no getting around it.

For example, all claims are not created equal – Pre-Petition Claims for taxes, wages, salaries, commissions, vacation, severance, retiree benefits, contributions to employee benefit plans, deposits, and a host of others may be entitled to priority for payment in whole or part.

Some of these “Priority Claims” must be paid in full within a limited period of time.

Claims secured by collateral such as real estate, equipment and the like (“Secured Claims”) are also separately treated.  Secured claims may be entitled to either be paid the value of the collateral over time, or return of the collateral.

Often a Secured Claim will be split (“bifurcated”) between a Secured Claim and an unsecured claim depending on the amount owed compared to the value of the collateral that secures the claim, giving the creditor  claims in more than one class under the Plan for the same debt.

Such creditors may have the right to make an election under Section 1111(b) of the Bankruptcy Code to waive their unsecured rights and have their entire claim treated as secured regardless of the value of the collateral, but (another “but”), that is beyond the scope (way beyond) of this brief note.

Contracts and leases with PG&E

Creditors may have  pre-bankruptcy contracts or leases with PG&E that are called Executory Contracts.  At  some point, PG&E must  either “assume” or “reject” them.

First, identifying whether or not you have an Executory Contract is no easy task.

The Bankruptcy Code does not define Executory Contract, but most courts have adopted this definition from Professor Vern Countryman:

“[A] contract under which the obligation of both the bankrupt and the other party to the contract are so far unperformed that the failure of either to complete performance would constitute a material breach excusing the performance of the other.”

Well that’s easy, not!

Think you might have one of these Executory Contracts with PG&E? No problem.

Just read Bankruptcy Code Section 365 (which deals with Executory Contracts) and welcome to Alice in Wonderland, where the law on Executory Contracts has been described as “psychedelic” . . .  a “thicket . . . where . . . lurks a hopelessly convoluted and contradictory jurisprudence.”

Oh, and a union labor contract is, you guessed it, an Executory Contract, rejection of which is covered by a different Bankruptcy Code Section (§1113), which has spawned volumes of case law and comment.

No problem, I’ve been paid

One more thing.  Maybe you dealt with PG&E, but they don’t owe you any money at this point and you don’t have a Pre-Petition Claim.

Well guess what – under the Bankruptcy Code, PG&E can “clawback” payments and other forms of transfers  if certain conditions are met.

These are known as “avoidable transfers,” and the look-back period can in some cases be up to 4 years (or even longer). And this is an important consideration before filing a Proof of Claim, which (among other things), waives your right to a jury trial.

PG&E’s brief history of time

Some may remember PG&E’s 2001 Chapter 11 bankruptcy, a case where the author still receives occasional notices some 18 years later.

Most experts agree that this earlier bankruptcy was born out of the way California’s public utilities were regulated by the California Public Utility Commission (CPUC), which (if memory serves) began requiring utilities like PG&E to supply as much power as customers wanted at rates determined by the CPUC.

A drought in 2001 limited PG&E’s opportunities to buy inexpensive hydroelectric power, and as a result PG&E had to buy more expensive power from out of state suppliers, some of whom (allegedly) artificially manipulated the market to reduce supply and drive up prices.

It is estimated this eventually cost PG&E and California somewhere between $40 and $45 billion (See, Weare, Christopher (2003); The California Electricity Crisis: Causes and Policy Options; p. 3–4; San Francisco: Public Policy Institute of California.

PG&E emerged from bankruptcy in April 2004, after paying $10.2 billion to its hundreds of creditors. As part of the reorganization, PG&E’s 5.1 million electricity customers had to pay above-market prices for several years.

PG&E, convicted felon?

Yes! Also not to be forgotten, PG&E is on probation as part of a criminal proceeding for its role in the San Bruno pipeline explosion in 2010.

That probation is being overseen by Federal District Court Judge William Alsup in Case No. CR-14-175 (“Criminal Case”), who at a hearing last week asked “Does a judge turn a blind eye and let PG&E continue what you’re doing, let you keep killing people? Can’t we have electricity that is delivered safely in this state?”

While PG&E may take the position Judge Alsup doesn’t have much latitude to change the terms of PG&E’s probation in light of the bankruptcy filing, this criminal case will likely bear significantly on the outcome of PG&E’s Bankruptcy Case.

If an investigation finds that PG&E recklessly operated and maintained power lines, the utility company could face murder, manslaughter or lesser charges in connection with recent deadly wildfires.

So, complicating factors multiply.

Coming events

PG&E’s Chapter 11 bankruptcy may take more than 2 years before a Plan is confirmed, and during that time there are a number of key events that will shape the outcome in addition to the Criminal Case.

For example, there is the role of regulatory agencies such as the Federal Energy Regulatory Commission (“FERC”).

FERC is an independent agency that regulates the interstate transmission of electricity, natural gas, and oil. FERC also reviews proposals to build liquefied natural gas (LNG) terminals and interstate natural gas pipelines as well as licensing hydropower projects.

According to PG&E:

“[A]ware from required public filings that the Debtors would be seeking Chapter 11 protection on January 29, 2019, beginning on January 18, 2019, several counterparties to wholesale power purchase agreements with the Debtors initiated proceedings before FERC requesting—on an expedited basis—that FERC order that “if it files a petition for bankruptcy, PG&E may not abrogate, amend or reject in bankruptcy any of the rates, terms and conditions of its wholesale power purchase agreements subject to [FERC]’s jurisdiction without first obtaining approval from [FERC]” (the “FERC Proceedings”). On January 25, 2019, FERC issued an order concluding that “this Commission and the bankruptcy courts have concurrent jurisdiction to review and address the disposition of wholesale power contracts sought to be rejected through bankruptcy.” (Complaint, Adversary Proceeding No. 19-3003 (the “FERC Adversary Proceeding”)

PG&E filed the FERC Adversary Proceeding asking the Bankruptcy Court to find and order that:

(1) confirmation that the Bankruptcy Court’s exclusive jurisdiction over the PG&E’s rights to reject any of its exclusive jurisdiction over the Debtors’ rights to reject certain executory power purchase agreements or other FERC-regulated agreements (collectively “PPAs”) under section 365 of the Bankruptcy Code, and further declaring that FERC does not have “concurrent” jurisdiction, or any jurisdiction, over the determination of whether the PG&E’s rejection of any of their PPAs should be authorized, and that the Debtors do not need to obtain approval from FERC to reject any of their PPAs;

(2) a determination that the Bankruptcy Court, pursuant to section 362 of the Bankruptcy Code, can issue an order enforcing the automatic stay as to any FERC Action; and

(3) that the Bankruptcy Court, to the extent the automatic stay does not apply, exercise its powers under section 105 of the Bankruptcy Code and preliminarily and permanently enjoin any FERC Action.

There is a motion pending to “withdraw the reference,” so that the FERC Adversary Proceeding can be heard by the District Court instead of the Bankruptcy Court, along with a number of motions by parties to some of the PPA’s seeking to intervene in the FERC Adversary Proceeding.

The outcome of the FERC Adversary Proceeding will set an important precedent on PG&E’s rights to control its fate, which in turn will drive the terms of the Plan.

Also, there will be hearings to determine the appointment of various committees of creditors, bond holders, and other interested parties (such as fire victims) who will have a significant voice in the Bankruptcy Case. And dates and deadlines will eventually be set by the Bankruptcy Court for such things as filing Proofs of Claims, assuming or rejecting Executory Contracts, and filing a Plan.

Should I just sell my Claim?

If you are a holding a Claim against PG&E, you may be contacted by a debt buyer (or claims trader) offering to pay you cash now to buy your Claim.  Sounds good, but the contract you will be asked to sign must be carefully scrutinized, as it will likely contain a number of contingencies.

This author does not recommend selling a Claim under any circumstances without having a lawyer review the proposed contract.

Lawyer? – who needs one

If you have a Secured Claim, potential Executory Contract (including a real estate lease), potential priority claim, general unsecured claim, or face a potential Clawback, you should talk to a bankruptcy attorney with Chapter 11 experience.

A good place to start is is the California State Bar’s list of certified bankruptcy specialists.

Many of those attorneys have significant Chapter 11 experience, and can assist you with assessing these complex issues.

You can reach Wayne by email at wsATwaynesilverlaw.com or by phone at (650) 282-5970   .  

We hope to expand our discussion of PG&E’s bankruptcy filing in the following days.

 

The One Person You Must Tell About Your Bankruptcy

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Spill the beans concept.Most people who file bankruptcy don’t want anyone else to know.

Some of my clients try to hide their break for financial freedom from friends and neighbors.

Others are worried about their boss finding out.

Occasionally, someone will try to keep it from their mate.

But trying to hide his bankruptcy nearly cost one client $103,000!

Because he hid his bankruptcy filing from his accountant. [Read more…]

Sign Your Corporation’s Name So You Aren’t On The Hook

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John_Hancock_Signature-wikimedia-public-domain

John Hancock knew how to sign his name- so large that King George could read it without his glasses.

But most small business folks who do business as a corporation are clueless when it comes to signing contracts on behalf of their corporation.

When they sign their name, without more, on the line that says “Owner”, they may have made themselves personally liable for the obligations in the contract.

Signing just your name likely defeats the very reason that you incorporated your business.  You’ve just put yourself personally on the hook.Fish-hook-green background-wikimedia-cropped

Why your business is a corporation

In the law, a corporation is a legal person, separate from the individuals or other entities who own its stock.  Despite how invested, financially and emotionally,  you are in your business, you and the business are really two separate entities.

The invention of the corporation made it possible for business people to limit their risk in an incorporated business to the amount they paid for their stock.  The creditors of the corporation couldn’t collect their claims from the stock holder.

That ability to limit your risk, to keep your business creditors away from your personal assets, probably figured large in your decision to incorporate.

How a corporation gets things done

Because a corporation is a “person” without any fleshy substance, it needs people to act for it.

Those people are its employees, managers, or its officers.  They can wield a pen and sign for the corporation.

A signature on a contract serves as proof that the signatories take on the benefits and burdens described in the written documents.  Physically, a real, live person has to sign.

But how do you sign for the corporation?

Acting for the corporation

Let’s assume that the document in question is an order for the design of a new website for your business and a year’s worth of maintenance.

You are the stockholder, president, and the manager of  My Business, Inc.  (For most of us small business folks, we are also the secretary, janitor, bookkeeper for the business as well.)

If this deal goes south, you don’t want the service provider suing you, liening your house, and garnishing your wages.  This is a corporate deal.

So, here’s how you sign the contract on behalf of your corporation:

MY BUSINESS, INC.

___________________

By  Your Name, President

You sign your name as you always do, but in your capacity as an agent of the corporation.  

Contracts don’t have to be signed by the president.  They can be signed by any party the corporation has authorized to act for it.  You could be, just as legally, the vice president, the CFO, or the general manager.

By adding your role in the corporation, you have signaled that the party to the agreement is the corporation, not you personally.  The entity making the promise to pay is the corporation, My Business, Inc.

Your signature as a representative of the corporation doesn’t put you personally on the hook for payment.

Good work, Mr. President!

More

Write a contract without a lawyer

Essential habits for entrepreneurs

Myth of the corporate credit card

 

Fish hook image:  © johnsroad7

Debt Collectors Distort Community Property Law

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distorted lawCalifornia community property law is complicated.

I get it.

It shouldn’t surprise me that debt collectors don’t understand community property.

Or maybe, they find it inconvenient to understand.  Or deliberately distort the law.

Collector expands spousal liability

A client reported that her ex husband had been told by a debt collector that the former marriage made him personally liable for his exwife’s debts.

There must be an emphatic, yet polite, word for b***s****.

Wish I knew the word… “Balderdash” seems so weak.

In my most generous view, this could be debt collectors from outside of California who are clueless about community property law. Or, more realistically, they’ll say whatever they think will scare a payment out of someone.

What California spouses owe

For the record, living in a community property state such as California does not make each spouse personally liable for the contractual debts incurred by their spouse.

If your spouse in California takes out a credit card and runs up a balance, you are not liable to the card issuer for the debt. The community property is liable for the debt, but you are not liable.

Community property law in a nutshell

During the marriage, property that a married couple acquires is presumed to be community property.  That community property includes your earnings as well as those of your spouse.

It may feel like community property law makes you personally liable, but the liability doesn’t follow you out of the marriage.

Death, divorce or a post post nuptial agreement with your spouse not to have community property ends whatever exposure you, personally, have for your spouse’s debts.

If there is no community property, then only the person who contracted the debt is liable for it.

Don’t take legal advice from debt collectors

My client’s encounter with the all-knowing debt collector is all too typical of collectors.

This is but one of the “whoppers” told by debt collectors.

Engage skepticism when dealing with this breed.

Or take notes, and check out the requirement that collectors tell the truth found in the Fair Debt Collection Practices Act and California’s Rosenthal Act.

More

Make debt collectors pay you

How debt collector nearly cost elders their home

When filing bankruptcy is the right move

 

How Chapter 13 Cuts Car Loan Down To Size

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car in bankruptcy

Car lenders who make new car loans with an underwater trade-in will face the music in Chapter 13.

The Supreme Court declined to review a 9th Circuit decision that stripped car loans of their protected specially protected status in bankruptcy; as a result, Californians will continue to benefit from the debtor-friendly decision in Penrod, rising out of a San Francisco bankruptcy case.

The question in Penrod

At issue was whether the prohibition on cramming down the debt on a vehicle purchased within 910 days of a bankruptcy filing protected “negative equity” financed in the car purchase.

“Negative equity” is the debt in excess of the trade in’s value. That left-over debt is added to the total of the new car loan and is unrelated to the value of the purchased vehicle.

And BAPCPA, the bankruptcy “reform” act of 2005 prohibited reducing a secured claim on a vehicle purchased within 910 days of the bankruptcy.  But did it similarly protect that part of the loan that wasn’t really related to the cost of the vehicle purchased?

Penrod facts

In Penrod, the Redwood City resident had traded in a car worth $6,000 on which she owed $13,000.  The new car loan included $7000 necessary to pay off the debt on the trade in.

The legal issue is whether that left over debt should enjoy the projections extended car sellers in BAPCPA for purchase money loans on the debtor’s car.

Every other circuit that addressed the question has given purchase money protection to the entire debt including the negative equity portion of the new loan.

The 9th Circuit held the negative equity was not purchase money as to the current car.  The appeals court remanded the case for the bankruptcy court to figure out how to apportion the payments made before bankruptcy between the purchase money element and the leftover debt element.

It’s surprising to me that SCOTUS didn’t accept cert on Penrod, since there is clearly a split among the circuits and it seems to this California bankruptcy lawyer that the Supremes take great pleasure in overturning the 9th Circuit.

But I’ll take a victory however it presents itself and await a decision on how to calculate what can be trimmed from a debtor’s car loan in bankruptcy.

Image  Snackariah under a Creative Commons license

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