Northern California Bankruptcy Lawyer

On The Bankruptcy Soapbox

The Soap Box

Bankruptcy Schedules Are More Than Just Paperwork

By

Bankruptcy paperwork can make you feel like you are drowning in paper.

There’s your paper; there’s the paper your lawyer needs.  And there’s the paper the court insists on.

Why bankruptcy schedules worth the work

It’s easy to try to skate. To cut corners.  To shut down.

But that paper is critical.

Nearly every question, benefit, or dispute in an individual’s bankruptcy case starts with the bankruptcy papers.

Those papers are called the schedules.  The schedules form the heart of a bankruptcy case.  They lay out what the person filing the case owns, owes, and spends.

And most debtors (those who file bankruptcy) have little idea how much paper is involved til they see the schedules and sign them in their lawyer’s office.

Before they get to the signing, debtors chafe at the endless questions from their attorney about the nature of the debt, who is liable, and whether the debt is disputed.

Is all this effort really needed?

Bankruptcy paperwork matters

Your schedules constitute  the trustee’s first look at you. Well-done schedules project engagement with the process and they tend to limit digging by the trustee.

The creditor schedules control who gets notice of your case and notice of the automatic stay.

Notice to all affected assures that anyone with a right to challenge the discharge of your debt to them is bound by the timelines of the Bankruptcy Code.

Creditors who don’t get notice may reopen the bankruptcy case later to assert that their debt isn’t dischargeable.

Omit assets and you may lose them, as case law limits your right to claim an exemption in an asset you didn’t disclose in the first place.

List it or lose it

Leave out a legal right or pending lawsuit and the defendant in that suit can have your lawsuit dismissed.

Then, there’s the matter of perjury:  the law provides for fines and imprisonment for deliberate untruths on the bankruptcy schedules.  Not something you want to expose yourself to.

What the schedules contain

Seen broadly, bankruptcy schedules list the debtor’s assets; debts; projected budget; and recent financial history.

Asset forms

Secured creditor form

Priority & unsecured creditor form

Since 2005, there’s a schedule for the means test.

You file proof of having taken prebankruptcy credit counseling and statement of your intentions with respect to debts secured by personal property, like your car.

Helping you get them right is part of the job of a bankruptcy attorney.

New bankruptcy forms

The courts are rolling out new versions of the bankruptcy forms which claim to be more “modern” and user friendly.

I find them verbose and impossible to scan easily to get the big picture in a bankruptcy filing.

The new forms read like tax forms and they suggest that you could competently file bankruptcy without a lawyer.  My experience is that, since 2005, it is the rare individual who can correctly file out the forms, much less understand the implications of those forms.

Enlist a professional to assess whether bankruptcy is right for you and whether now is the right time, before you file.  Afterward, it may be too late.

More

How to find the right bankruptcy lawyer

Understand exemptions

What debts don’t get wiped out

Image:  weatbix

Chapter 13 To The Rescue In Ruinous Business Lawsuit

By

rescued

Twice in the last six months, Chapter 13 bankruptcy has saved clients facing catastrophic lawsuits arising out of business.

And because the targets of these lawsuits filed bankruptcy before they’d spent a fortune on lawyers and before the court had a chance to award huge damages, they fit beneath the Chapter 13 debt limits.

We think of Chapter 13 as a consumer tool.  It’s designed for those with a regular income.  It’s sometimes called a wage earner plan.  The amount of debt involved has to be below certain limits.

So, Chapter 13’s application to business lawsuits isn’t obvious.

But it works like a charm.

Here’s how Chapter 13 rescued one client sued about a business dispute.

Chapter 13 filed before judgment

Chapter 13 is not available to everyone.  Only individuals can file.  Their debts must fall below certain amounts.

But, critically, the debt limits in Chapter 13 apply to debts that are liquidated.  That means that the amount of money owing is fixed.

Liquidate:  to determine the amount of indebtedness or damages.

The lawsuit my client faced asked for “damages according to proof”.  The former business associate claimed many measures of harm, all of which was disputed.  The claim was unliquidated; you couldn’t see or calculate the claim from the face of the complaint.

The suit could not be ignored.  And given the attitude of the plaintiff, the seriousness of the allegations, and the complexity of the case, it was going to be expensive to try.  And ruinous if the plaintiff won.

By filing Chapter 13 before trial, the claim was UNliquidated when the bankruptcy was filed.

No matter how much the plaintiff claimed was owed, because no amount of damages had been determined before the bankruptcy was filed, the unliquidated debt didn’t count against the Chapter 13 debt caps. [For context, when the plaintiff later filed a claim, he sought $15,000,000!]

Why Chapter 13 rocks

Chapter 13 offers eyepopping advantages over other forms of bankruptcy that my client could have chosen.  The first advantage is that a debtor in Chapter 13 stays in possession and control of his assets during the case.

By contrast, in Chapter 7, a court appointed trustee takes legal control of the debtor’s assets.  The trustee is tasked with turning non exempt assets into cash for the benefit of creditors.

My client could have seen his home sold in a Chapter 7, long before it was determined if he really owed the former business associate anything.

In a Chapter 11, which has no debt caps, he could have stayed in possession of his assets.  But to confirm a Chapter 11 plan, he would have to get the votes of his creditors in favor of a plan.  An angry creditor with a large claim is unlikely to vote for a plan the debtor sees as desireable.

In Chapter 13, the role of creditors in approving a plan is much smaller.  A creditor can object only on certain grounds found in the bankruptcy code.  Being unhappy with the amount being paid to creditors is not one of the permissible objections.

Confirmation tests for Chapter 13

Not to mention that the legal fees in Chapter 11 are invariably much larger than in Chapter 13.

Plan confirmation limits the damage

When the Chapter 13 plan proposed by my client was confirmed, that plan effectively limited for all time the amount he’d have to pay to put all of his debts behind him.

Where a creditor with a California judgment can collect that judgment for 10 years, and renew it for another 10 years, confirmation of a Chapter 13 plan limits what creditors get.  The pot of money the debtor will create through the plan equals the amount that would have been paid to creditors if the bankruptcy case had been Chapter 7 instead of Chapter 13.

Importantly, the amount a Chapter 7 trustee would distribute is what’s left when the trustee’s expenses have been paid, any capital gains taxes have been paid, and any claims with priority over unsecured creditors have been paid.

Instead of his wages and his acquisitions for the next 10 or 20 years being exposed to levy to pay a judgment, now the client has a 5 year payment plan based on the value of his assets on the day he filed bankruptcy.

Appreciation in value and improvement in financial circumstances all remain with the debtor.

What plaintiff gets if he wins

Confirmation of a Chapter 13 plan which fixes the total amount that unsecured creditors get on their claims limits the up-side to the vicious plaintiff.

The dispute about whether my client owes this guy anything is ongoing;  since we objected to the $15 M claim, the dispute has to be decided somewhere.

If the debtor wins, his other creditors don’t have to share the pot of money created by the plan with plaintiff.

If plaintiff wins and fixes the amount that the debtor owes him, he gets only a larger slice of the same “pie”.  Whether he is owed fifteen dollars or $15, 000,000, plaintiff’s recovery is limited to a share of the money going through the Chapter 13.

At the end of the Chapter 13, any part of the judgment that hasn’t been paid is discharged.

Some pain remains

It’s not going to be a free ride.  My client has been forced to file bankruptcy and still has to pay for representation in the bankruptcy case and for his trial lawyers.

The litigation over plaintiff’s claim won’t be pleasant.

He faces five years of plan payments to fund the Chapter 13 plan.

But even an adverse result at trial will not blot his life for the foreseeable future.

That’s why our legal system favors a fresh start through bankruptcy.  And why I’m a huge fan of Chapter 13.

Debts You Can’t Wipe Out In Bankruptcy

By

nondischargeable debts

Nineteen kinds of debt survive a bankruptcy discharge: but three stand out from the rest.

Those three exceptions to discharge look, not at the kind of debt such as taxes, or support or student loans.  Rather the exceptions look at  how the debt arose.

These exceptions prevent bad actors from escaping the consequences in bankruptcy.  Bankruptcy is supposed to help the honest but unfortunate person.

There’s another, significant difference:  a creditor who holds one of these claims has to act, promptly, to except his claim from discharge.

The creditor has to file a timely challenge to the discharge of its debt.

And then, carry the burden of proof at trial.  The debtor gets a presumption that the debt is dischargeable.

So, what kind of bad behavior may keep a debt from being discharged?

Fraud is first

Debts that are created as a result of fraud, misrepresentation or false pretenses aren’t subject to being wiped out.  That’s §523(a)(2).

Note that the exception looks at the transaction at its begining. The statute focuses on money, property, services to the extent obtained by fraud.

While the debtor may have behaved badly after a debt was created. that bad behavior doesn’t exclude the debt from discharge.

There’s another wrinkle. If the alleged false statement is one about the debtor’s financial condition, that statement must be in writing to preclude discharge.

Breach of fiduciary duty survives

The second clutch of bad behaviors that can’t be discharged involve breach of fiduciary duty, embezzlement and larceny. §523(a)(4).

Embezzlement and larceny, which is a kind of theft, are easy to understand.  But not so, fiduciary duty.  Bankruptcy law has a narrow definition of who is a fiduciary.

For breach of fiduciary duty to be nondischargeable, the duty must arise under an express trust.  So trusts that are created by law to further equity or prevent undue enrichment don’t fall under this subsection.

One of the first judges I practiced before used to say that under California law, everyone is a fiduciary for everyone else.  But not in his federal court.

Willful and malicious injury gets no discharge

Debts grounded in intentional injury to person or property live on after bankruptcy. Section 523(a)(6)makes non dischargeable debts for willful and malicious injury by the debtor to another entity or to the property of another entity;

There’s a huge body of law tussling with the meaning of “willful” and “malicious”.  And the plot thickens when you realize that the protections for creditors created by this subsection is greater in Chapter 13 than in Chapter 7.

In Chapter 13 a debt for damages for personal injury is non dischargeable if it results from either willfulness or malice!  Damage property willfully or maliciously and you’re OK in Chapter 13.

Timing is everything

There’s a timing issue for both creditors and debtors in these three discharge exception cases.

Debtors facing state court litigation may want to file bankruptcy before trial of the matter.  Findings of fact made in a state court trial will be entitled to finality in a  bankruptcy trial.

So,  suffer an adverse finding in state court and you’re stuck with that finding in bankruptcy.

But since the standards of what is fraud or false representations is slightly different in federal law than in state law, you may have a dispute about whether the finding is really on the same issue that the bankruptcy court is focused on.

It may be cheaper to try the issue once, in bankruptcy court, than risk having to defend yourself twice in state court, then bankruptcy court.

Creditors must be diligent once a bankruptcy case is filed, to meet the filing deadline for challenging the discharge of their debt.  Generally, the bankruptcy court sets a deadline 60 days after the date set for the first meeting of creditors by which challenges to dischargeability must be filed.

Miss that deadline for one of these kinds of debts and you’re out of luck.  The debt will be discharged regardless of the merits of the challenge you could have brought to exclude it from discharge.

More

How bankruptcy treats debts to the government

What happens to judgment liens in bankruptcy

Does a bankruptcy discharge last forever?

When Your Bank Account Is Seized: California Action Plan

By

 

bank levyTime is short when you get a notice that a creditor has levied your bank account.

California has protections that may allow you to recover money that’s been seized.

But success in getting your money back depends on prompt action and following the procedures.

Bank levy basics

A creditor with a judgment is entitled to levy your bank account to collect the money you owe.

All about judgments

You have an offsetting right to keep some money by claiming exemptions.

A levy only catches the money that is in your account when the levy is served.  It doesn’t affect money deposited to the account later.

Your bank has few choices when a levy is served.  By law, it must hold the money in the account on the day the levy is served for the creditor.

And it must deliver to you a notice of the levy and information about your rights to claim exemptions.

What you can keep

Let’s assume that the money in the levied bank account consists of your wages.

California exemption law protects a minimum of 75% of take home pay.  A non-support creditor simply can’t reach the 75% that is exempt. Cal. Code of Civil Procedure 704.070.

If your wages were already garnished before they were paid to you, what you take home is exempt from further levy.

And, you may be able to protect more than 75% of your wages if you show that you need more than 75% to provide for yourself and your family.

California law grants absolute protection to the assets of and distributions from private retirement plans and retirement-focused profit sharing plans.  CCP 704.115.

Public retirement benefits are also exempt.  CCP 704.110.

Federal law protects Social Security.

Claiming funds exempt

Here’s what you need to do to contest the levy.

When a bank account is levied,  CCP 700.010 requires the levying officer to serve on the judgment debtor these documents:

  • the writ of execution (issued by the court)
  • a notice of the levy
  • a list of exemptions prepared by the Judicial Council

The last item, the list of exemptions, is your key to regaining some part of the bank balance if they are traceable to wages.

The notice of levy contains the critical instructions and the time line:

To claim an exemption, you complete the Claim of Exemption form and give it to the levying officer, typically the sheriff.  If you contend that the levied money is necessary for your support and for the support of your dependents, you also complete the Financial Statement.

The judgment creditor then has a choice.  It can agree that the levied funds are exempt and they are returned to you.  Or, the judgment creditor can set a hearing before a judge to challenge your claim of exemption.

Serve papers on time

The burden is on you as the judgment debtor to complete your clams of exemption and get them back to the levying officer on time.

A successful claim of exemption protects your funds from this levy.  While it may give the creditor some visibility into your finance, it doesn’t solve the bigger problem created by the judgment.

Consider consulting with a credit counseling agency or a bankruptcy lawyer to assess the bigger picture of your finances.  Even if the creditor has a judgment, the debt may still be dischargeable in bankruptcy.

More

Collection lawsuits in California

Property safe from creditors under California law

Myths about bankruptcy

Image © vladimirfloyd

Personal Assets Can Be At Risk For Your Business Debts

By

Business debt can bleed over into an entrepreneur’s personal assets.  My client was dumbfounded.

He was aghast that the generous equity in the home he and his wife owned was at risk when his corporate business folded.

That was not because the shareholder is liable for the corporation’s debts.  A properly operated corporation confines the business debts to the corporate entity.

How to properly sign for your corporation

No,  it’s because he signed the business lease in his individual name.  And because he was a corporate officer who didn’t pay all the payroll taxes for the corporation’s employees.

As a person liable for a debt, his assets (and the whole of the community property in California) are exposed to creditors.

While exemptions protect some assets, up to a specified dollar value,  the non exempt equity in the family home is at risk when debts incurred for business go unpaid.

Understand the California homestead

When business vs. personal distinction matters

The only time that it matters whether a debt is personal rather than business is when figuring the infamous means test.  The means test applies only to those whose debts are “primarily consumer”.

So, debts incurred in business, taxes and debts imposed by law are not “consumer” debts.

If those kinds of debts exceed the total of consumer debts, the means test doesn’t apply.  There is no need to “qualify” for bankruptcy relief by reason of income.

Sole proprietors are fully at risk

As a matter of debtor-creditor law, if your business is a proprietorship, there is no legal distinction between you and your business.  The debts you incur to run the business have the same legal rights to payment from your assets, personal and business,  as the debts incurred for personal living.

When the business is one with the business owner, failure to pay any debt imperils both business and business owner.

Isolating business debt

Corporations and LLC’s are legal “persons” invented to create a distinction between the business and the business owner.  The corporation can incur debt in its name alone, and only it is liable.

The practical catch is that vendors and landlords may not want to extend credit where the only “person” liable is a thinly capitalized corporation. They may insist on a guarantor.  Execute that guarantee of the corporation’s debt, and the individual has staked his personal assets to pay the debt.

The other way owners of corporate businesses become liable for the business debts is inattention.  They never change the vendor accounts to the corporate name when they incorporate.

They are sloppy about how they sign business agreements.

The myth of the corporate credit card

They take a business credit card and don’t realize that they are personally liable.

Who needs bankruptcy

In the case of the entrepreneur I met with, it turns out that the corporation is liable for very little and it can survive as an entity if there is a business future.

The shareholder, however, is a likely candidate for a Chapter 13, to keep the house and pay the debts over time.

More

Is it safe to file a corporate bankruptcy?

Asset protection for everyday folks

How exemptions work

Getting Excused From Bankruptcy’s Means Test

By

rp_800px-Chihuahua_portrait-300x225.jpgYou can get a pass on the means test without claiming your dog ate your homework. 

If your debt is not “primarily consumer debt”,  you don’t have to pass the means test to file bankruptcy.

So, you need to total up the consumer debt you have and compare it to the rest of your debts.

Don’t miss the fact that tort claims aren’t  “consumer debts” under the means test.

So if tort judgments or even unliquidated tort claims total more than your consumer debt, you don’t have to take the means test.

Check the box, and come on in and file the bankruptcy chapter of your choice.

Tort explained

Let’s start by defining a “tort”.  A tort is a civil wrong, other than a breach of contract, that causes injury or damage to another without excuse.

Automobile accidents make up the largest group of torts.  The law requires everyone to conduct themselves so that others are not hurt.  One who negligently fails to use appropriate care such that someone else is hurt has committed a tort.

Whereas people choose to enter into contracts, and the contract can specify the remedy if one breaches the contract, tort liability is imposed by law.

It is that imposition of liability that courts have looked to in finding that tort damages are not consumer debts for the purposes of bankruptcy law.

Means test controls access to bankruptcy

Virtually everyone who comes into my office has heard about, and obsesses over, the means test.

Often they assume that merely making more than the median income disqualifies them from bankruptcy relief.

Cheat sheet to pass the means test

I remind even bankruptcy lawyers that debt incurred for business or investment purposes and tax debt is not “consumer debt”.  If non-consumer debt predominates,  the means test does not apply.

Now, the logic of giving a pass in bankruptcy to those who don’t pay their taxes eludes me, but that’s Congress for you.

Not consumer debt

But there is a little discussed additional category of debt that is not debt “incurred for personal, family or household” purposes (§ 101(8)) :  tort claims.  The reported cases hold that these sorts of debts aren’t incurred in the manner of contract debts like credit cards and medical bills.

The client in my office had no contractual debt, other than a tiny student loan.  But the pending lawsuit accused him of harboring a dangerous dog.

Now mind you, the dog didn’t weigh 5 pounds and the wound it inflicted was objectively insignificant.  The suit, nonetheless, was expensive to defend, stressful, and could blight an otherwise sound financial life.

The bankruptcy case became just that much simpler  when I recognized that we could bypass the means test.

Tort claims aren’t consumer debts; since the dog bite claim dominated the client’s list of debts, it became irrelevant how much money the client made.

The best way to ace the means test is to avoid it altogether.

More

Even High Income Families Pass The Means Test

The Problem Even A Good Bankruptcy Lawyer Can’t Fix

Discharging Taxes In Bankruptcy

Image courtesy of Wikimedia Commons.

How 13 Works To Save Your House From Foreclosure

By

save house

Saving a house from foreclosure is the single reason most people file bankruptcy.

Bankruptcy stops foreclosure- that’s a given.

But then what?

How can bankruptcy save the house,  rather than just putting off the inevitable loss?

The mortgage lender has a lien on the house, and liens aren’t discharged in bankruptcy.

So, how does bankruptcy help?  Meet Chapter 13 of the Bankruptcy Code.

Chapter 13 bankruptcy is the chapter of choice if your goal is to keep living in the house, as opposed to selling it to realize equity or to avoid the credit hit of a foreclosure.

Chapter 13 imposes a payment plan on lender

Chapter 13 is built to allow the homeowener to cure defaults on long term debts like mortgages.

Gone is the ability of the lender to refuse to take catch-up payments or to insist on cure in a single payment.

This is federal law, and the homeowner is at the helm of this ship.

The homeowner in Chapter 13 proposes a plan for payments to the Chapter 13 trustee.  The trustee, in turn, pays creditors according to the plan.  The usual distribution scheme pays secured claims, like home loans, first.

So, if you are, say, $24,000 behind on your mortgage, your plan can provide that you pay the trustee a monthly payment that catches up on that default.  Chapter 13 plans last a minimum of three years and a maximum of five years.

Your plan will need to provide that you make the on going payments on the mortgage as well.  Each district has its own protocol as to whether you write the check to the mortgage lender for ongoing payments or whether you pay the trustee, who pays the lender.

Once your plan is confirmed, the lender is required to accept the payments.  Absent some post filing breach on your part, the lender is unlikely to have any way to push back against the payment plan.

Trustee challenges to confirmation

Because the confirmed Chapter 13 plan has such power, both the Chapter 13 trustee and the mortgage lender have opportunity and incentive to object to your plan.

coins in a stackThe trustee’s objection is often focused on feasibility.  Does your projected budget show that you can pay enough into the plan to do what’s required?

Remember that the amount necessary to fund the plan is not just the $24,000 that our hypothetical debtor owes on the mortgage.

The Chapter 13 trustee gets a commission on the money she handles in the case.  So, to get $1000 to the mortgage lender, you have to pay the trustee $1100, where the trustee’s commission is the 10% maximum.

Also, if you owe priority taxes, the Bankruptcy Code requires that those taxes be paid in full over the life of the plan.  Likewise,  any delinquent family support claims must be paid in full.

So, the total payments to creditors through the plan may need to cover other creditors as well.

The trustee will look at the total amount your plan provides over the life of the plan and comparing it to your projected income on schedules I and J.  Does it look like you can pay your current living expenses and the amount required by the plan?  If you propose to increase plan payments in future months, is there reason to think you will have the money to do that?

If not, your plan may not be feasible.  If it’s not feasible, it doesn’t get confirmed.

Mortgage creditor fights back

The mortgage creditor has standing to oppose confirmation as well.

Even if the secured creditor doesn’t challenge feasibility or good faith, both required for confirmation, the secured creditor has another, less direct weapon.

When you file bankruptcy, the secured creditor gets to claim not only the missed mortgage payments, but any money the lender has advanced for taxes or insurance.  And, they may have an escrow shortage projected for the current year’s payments.  That’s not to mention foreclosure costs and other fees.

So the lender’s claim may be larger than you expected.

The beauty of Chapter 13 is that the lender has to make full disclosure of those claims and you get to challenge whether the accounting is correct.  You can also challenge whether the fees sought are really allowed by the mortgage.

Mortgage check up at plan’s end

So let’s assume that you get your plan confirmed and faithfully make all the payments required.

New bankruptcy rules work to make sure that you emerge from Chapter 13 fully current on your home loan.

Bankruptcy Rule 3002.1 requires a lender secured by a principal residence to give notice to the court, the trustee and the homeowner of payment changes that occur during the case.

Also, if the required escrow payment changes, or any fees get added to the loan during the case, the lender has to file a notice describing the change.

And the homeowner can challenge changes or additions to the debt.  If it doesn’t get sorted out, a judge will look at the situation and make a ruling.

After the last payment to the plan, if the lender contends you aren’t fully current on the loan, it has to file a detailed accounting showing how much it claims is unpaid.  That accounting is subject to challenge.

Debtor’s rights after 13 is over

mortgage tools for homeownersOne of the few good things included in the 2005 amendments to the Bankruptcy Code, in my opinion, are the provisions that make it a violation of the debtor’s discharge to improperly credit payments made pursuant to a Chapter 13 plan.

All too often, the lender or mortgage servicer either has two sets of books on a loan, or the entries it has made for payments during the plan get altered after the Chapter 13 is over.

Bingo, the lender now claims the borrower is in default, and foreclosure looms.

The bankruptcy court is now a forum for challenging those contentions and getting redress, including the borrower’s attorneys fees to make it happen.

Chapter 13 saves houses

The power of Chapter 13 goes far beyond the automatic stay in giving homeowners a chance to keep their homes.

Not only does it get the homeowner some law to counter balance the endless rights of the lender in the loan documents, it gives the homeowner a referee in the form of a bankruptcy judge who can resolve disputes.

Because bankruptcy judges over the last decade have seen some much of the mortgage meltdown and the deterioration of mortgage servicing up close, they are familiar with the problems and less and less tolerant of lender abuses.

Chapter 13 can be a struggling homeowner’s lucky number.

More

Our best advice on keeping your house

Image copyright Fotolia and Jakub Krechowicz

Do You Get The Bankruptcy Grubstake Exemption?

By

How bankruptcy grubstake exemption works

The word grubstake never appears in the Bankruptcy Code or the California Code of Civil Procedure where the exemptions available in bankruptcy cases filed in California are found.

Yet every bankruptcy lawyer uses the phrase; and seemingly, every bankruptcy debtor struggles to understand it.

What’s a bankruptcy grubstake

Here’s the standard English definition of grubstake.

1.provisions, gear, etc., furnished to a prospector on condition of participating in the profits of any discoveries.
2.money or other assistance furnished at a time of need or of starting an enterprise.
The miner’s grubstake allowed him to buy food and feed his burro while prospecting.  The bankruptcy grubstake does the same:  it furnishes the wherewithal for a fresh start.

The grubstake exemption is sometimes called the wildcard exemption. The exemption is expressed as a dollar amount. 

In a California case, that amount is currently $27,425.  That’s the total of the amounts provided in sections  Code of Civil Procedure 703.140(b)(1) and (b)(5).  Here’s the Judicial Council list of exemption amounts.

While other exemptions in the California bankruptcy exemption statute are limited to particular kinds of property ($1425 for jewelry, $4800 for equity in a car, etc.) the grubstake can be applied to any kind of property.

More importantly, it can be divided among different kinds of assets.

A person filing Chapter 7 or Chapter 13  can use part of the grubstake to protect extra value in a car; part for the balance in a bank account, or stocks held for investment; or part for a timeshare or business interest.

Any kind of asset is fair game, so long as the total grubstake claims doesn’t exceed  $27,425.

Contrast with state exemptions

The exemptions found in CCP 703.140 are available only in a California bankruptcy.  They aren’t available to protect assets from collection of a money judgment outside of bankruptcy.

The standard California exemption system is found in CCP 704.  Those exemptions do apply in state law proceedings and are an alternative choice for a Californian filing bankruptcy.

The debtor in a case under Title 11  must choose either the 703 or the 704 system of exemptions as a whole.  You cannot combine the two systems or choose one exemption from this system and another exemption from the other system.

The California state exemptions include the generous homestead exemption that protects a specified amount of equity in property used as the debtor’s home.  The grubstake in the California bankruptcy exemptions is a much smaller sop to the family that doesn’t have equity in a home.

Making use of the grubstake

One of the most important services a bankruptcy attorney provides is choosing the exemption system and allocating  the grubstake among the client’s assets so as to protect as much property as possible.  It’s not usually possible to select exemptions until the client has provided a list of what they own and an estimate of the present sale value of the property.

More

Getting your bankruptcy papers right

Secret exemptions

Pay creditors or file bankruptcy

Image courtesy of scrambldmeggs

Updated October, 2016.

What’s Wrong With Most Get-Out-Of-Debt Advice

By

consider bankruptcy

Get-out-of-debt gurus too often miss the essential truth known to every carpenter.

Measure twice, cut once

Too many trite lists of tips to help you get out of debt miss the vital first step.

Before you choose a get-out-of-debt path, assess your situation.

When you put bankruptcy at the bottom of the list, to be chosen only after everything else has failed, you may spend a lot of time  hopelessly floundering. A lot of stress. A lot of cash spent without achieving your goal.

Instead

Measure the size of your problem.

Inventory the tools you have available.

Know how long you have to get the job done.

There’s little point in attacking substantial tax debt by cutting out Starbucks.  Nor is bankruptcy the right tool for a couple thousand dollars in credit card debt.

There’s no one-size-fits-all when it comes to debt.  Whip out your financial tape measure, and check the factors that make a difference here.

 

 

Speak Fluent Bankruptcy

By

bankruptcy terms

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

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

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

Essential bankruptcy terms

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

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

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

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

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

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

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

Dischargeable – debts that may be wiped out in bankruptcy  

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

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

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

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

Add some numbers to your list

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

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

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

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

Bankruptcy chapters come next

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

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

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

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

Chapter 12  – a simplified reorganization proceeding for family farmers

Use your words

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

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

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

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

More

Questions to ask a bankruptcy lawyer

What makes a bankruptcy lawyer great

What should bankruptcy cost?

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

Categories