K is for the stuff you keep through bankruptcy.

That “stuff” (a legal term, in my office<g>) is more than just the assets that are exempt by law.

Some possessions you keep simply because they have little or no value.

The bankruptcy trustee’s job is to gather up assets that he can sell to generate funds to pay creditors.

If something has no value in the marketplace, the trustee is not interested.

Put in this category family photo albums, used clothes, junker cars.  It would cost the trustee more to pay someone to pick it up than he could get by selling.

Some possessions you keep because they are not “property of the estate” as defined in the bankruptcy code.  Pension plans and 401(k) accounts are the biggies, here.

Because these take the form of a trust with an provision limiting creditor access to the funds, they don’t come into the estate at all.  Creditors, other than the IRS, can’t touch them.

And then there are the assets you keep with substantial value, but are subject to liens that cover all of the value of the asset.  If such assets were sold, the lien holders must be paid off in full before there would be anything left for the bankruptcy trustee to pay to creditors.

It is usually the existence of liens that allow debtors who appear to have house, cars, vacation property, etc., to sail through bankruptcy without losing anything.  Those people have already bargained away the value in the asset, keeping just legal title and the right to possession.

So, keep your chin up.  You will probably keep far more through a bankruptcy case than you imagine.

Consider that my friend and newly coined California consumer protection lawyer Jay Fleischman thinks “K” is for keys in the bankruptcy alphabet.

Image courtesy of be.mosaic.

In my bankruptcy alphabet, H is for house.

Can I keep my house if I file bankruptcy, anxious homeowners ask.

With the precipitous fall of home values, my answer is almost always, “yes”.

Should you keep the house is another question.

Houses are vulnerable in bankruptcy only if there is

• significant equity
• above the total of the mortgage payoffs and delinquent property taxes, and
• above the homestead exemption allowable to the debtor, and
• above the expenses of sale like real estate commissions

If the trustee can’t sell the property for enough money to pay  costs of sale, property taxes, mortgages and their arrears, and the debtor’s homestead, the house will be abandoned by the trustee back to the debtor.

It’s black letter law that liens pass through bankruptcy unaltered, unless there is a bankruptcy court order to the contrary.   The liens of the mortgage lenders and any back property taxes remain valid charges on the property.

Even though the bankruptcy discharge prevents the lender from suing the borrower, the lender can still foreclose on the property if state law allows.

The more difficult question, then, is whether the homeowner, now free of the old unsecured debt, can work it out with the lender.  The bankruptcy case neither compels nor frustrates the attempt to modify a mortgage loan.

My questions are can the homeowner

• Make the regular payments
• Catch up on any missed payments
• Modify the loan to better terms

My hope for my clients is that they can look at homeownership with a clear head, and make a sound, economic decision about whether to keep an troubled piece of property.  In the end, home is where the heart is not where your name is on the title.

This post was brought to you by the letter H. Others taking the bankruptcy alphabet challenge think H is for Household.

I think our image is courtesy of Rootytootoot.

 

 

G is for guaranty in my Bankruptcy Alphabet.

A guaranty is just as much a debt as the bills one incurs directly, yet guaranties are often forgotten when the list of creditors is assembled to file bankruptcy.

Any time you sign for a debt, yours or someone else’s, you create a legal relationship. The lender or card issuer has obtained the right to sue you on your guaranty for the debt involved.

Usually, the creditor doesn’t even have to sue the other borrower first. So guaranties come with some real financial exposure.

If you think of your creditors as just those people who send you a bill monthly, you’re likely to miss a number of creditors. It is an absolute rule that when you file bankruptcy, you include all of your creditors.

Whether or not a debt is now due, whether it may only be payable when someone else can’t pay, or even it you dispute that you owe the debt, the debt should be listed in your bankruptcy papers.

Lots of my clients tell me that they are only “secondarily liable” for a loan, or they are “just a co signor” for a debt. They miss the fact that any kind of liability at all makes the other party a creditor.

I ask clients to tell me about any situation where they are a guarantor, a co signor, a co borrower, or a second party. We also want to find debts where the client disputes that there is any debt at all. Bankruptcy can discharge debts that have never been decided by a judge.

I can only guaranty my clients the bankruptcy outcome they want if they list everyone to whom they owe money or might owe money.

This post has been brought to you by the letter “G”.

In Jay Fleischman’s bankruptcy world, G is for Garnishment. Gad zooks!

Image courtesy of takomabilelot

E stands for exemptions in my Bankruptcy Alphabet. Exemptions describe the possessions you get to keep when you file bankruptcy.

E could also stand for Exception, since exemptions are the only place in bankruptcy law where the law is explicitly different from state to state.

The Bankruptcy Code gave the states the right to prohibit their citizens from using the federal exemptions and to limit them to the exemptions provided by state law. Most of them took the feds up on the offer.

California had it both ways: it denied residents the right to claim the federal exemptions, then enacted California bankruptcy exemptions that mirrored the federal exemptions. Go figure.

The right to keep some assets away from your creditors is grounded in the idea that a debtor needs something with which to start over.

When a debtor designates some piece of property as exempt, it leaves the bankruptcy estate, that mythical pile of possessions that the debtor entered bankruptcy with. Neither the creditors nor the bankruptcy trustee can take exempt property from the debtor.

Exemptions protect the equity in an assets. So, the debtor may end up keeping a house worth lots more than the dollar amount of the exemption because a large part of the value of the asset has been pledged to secure a mortgage loan. The debtor doesn’t have to exempt that part of an asset charged with securing a debt.

There are also unwritten exemptions, or functional exemptions. The laws of economics say that the trustee will not gather up and sell assets with so little value that the costs of sale leave little for creditors. For that reason, debtors often keep more than the exemption system provides because it’s simply too expensive to sell things worth relatively little.

Sadly, it is the choice of exemptions where many people who attempt to file bankruptcy without a lawyer get in trouble. It isn’t trouble with the system, it’s trouble in that they short change themselves and leave unprotected something they could have kept despite the bankruptcy, if they had done the exemptions right.

This discourse on Exemptions has been brought to you by the letter “E”.

Consumer protection lawyer Jay Fleischman, who started this letter madness, thinks “e” is for Executory Contract.

Image courtesy of takomabibelot.