Northern California Bankruptcy Lawyer

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The Only 3 Times Filing Bankruptcy Is Worth It

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Facing financial trouble, there are only three times when it makes sense to file bankruptcy.

None of them is labeled “last resort”.

Yet financial-advice gurus keep saying, bankruptcy should be your last resort.

That kind of thinking keeps people suffering too long, risking worse than financial embarrassment, and wasting money when repayment is a lost cause.

Putting emotions to the side, let’s walk through those three situations when filing bankruptcy is the right choice.

1.  You have a crisis

Foreclosure, repossession, or wage garnishment threaten the foundation of your finances.  Without a house, a car, and a paycheck, not much about day-to-day life is manageable.

Bankruptcy is may allow you to keep something that you would otherwise lose to creditors without bankruptcy.

Bankruptcy provides the “time-out” that stops all collection action.

The automatic stay triggered by filing bankruptcy has the force of law to make everyone stop in their tracks and move the action to bankruptcy court.

Sometimes, just getting served with a collection lawsuit seems like a crisis.

10 things to know about judgments

A lawsuit, after all,  is the precursor to a judgment that leads to garnishment, liens, or levies on your assets.

Service of the complaint isn’t really a crisis, but it’s a wake-up call that trouble looms ahead.

Usually, actually getting sued is often just a symptom of a much larger problem:  it’s not just the creditor who filed this suit, but the bunch of  other creditors who aren’t getting paid either.

Bankruptcy gets you a moment to consider the big picture, and provides the legal forgiveness of most unsecured debts.  It’s the long term effect of the discharge that is precious.

2.  You see the big picture

It doesn’t require a crisis to look at your balance sheet and realize you can’t dig your way out of a financial hole.

A lifetime of minimum payments on suffocating debt is no life.  Keep making minimum payments and the debt doesn’t even die of old age, because payments extend the statute of limitations.

Healthy finances include a reserve for emergencies and serious savings for your old age.  Keep feeding VISA and AMEX and you’ll be eating cat food at 70.

Bankruptcy exists because lawmakers understood that the economy is better off when people aren’t driven into the economic underground, and when families have the chance to be self sufficient.

It doesn’t matter how got you into debt: most bankruptcies result from events the individual didn’t control, like job loss, illness, or divorce.

Whether you’re in financial trouble because of bad luck or bad judgment, a fresh financial start is energizing.

3.  You’re worrying yourself sick

How we feel about owing money has a huge impact on physical and mental health.

It’s unfortunate in a way that our societal tendency to lionize those who doggedly pay off their debts:  the heroic story of slaying debts blinds us to the fact that stress kills.

True story of retired couple who made wrong choices about who to pay

And stress makes us stupid:  actually, measurably less likely to make good decisions going forward.  Collection pressures force too many folks make foolish choices about which creditor to pay.

So, when money worries interfere with sleep, digestion, work or relationships, it’s worth considering whether a bankruptcy discharge would improve the situation.

Even elders and the disabled, who are often legally protected from collection by non bankruptcy laws, decide to discharge debts so the bills are gone legally, for all time. And they enjoy peace at home.

Reasons to file overlap

These three reasons for filing bankruptcy aren’t mutually exclusive:  you can have a crisis and see the big picture.

But the idea that bankruptcy is only a last resort, when you’ve exhausted all other avenues, is just flat wrong.

Bankruptcy should not be taken lightly, but neither should it be the last option.

The sooner you look at the big picture provided by bankruptcy, the less likely you are to waste money trying to pay impossible debts or make catastrophic decisions like invading retirement or borrowing against your house to pay dischargeable debts.

More

Does debt settlement work?

The real causes of bankruptcy

Why bankruptcy seems scary

California Garnishment Now Provides Greater Protection Of Wages

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california garnishment lawWorkers making close to the California minimum wage got additional protection from wage garnishments under a change in the law effective in 2013.

With the annual increases in the state minimum wage, in 2019 California law now protects an employee’s weekly net wages up to 40 times the state minimum wage, currently $11 to $12 per hour.

The prior formula  limiting a judgment creditor to 25% of a debtor’s after tax wages remains.  But the amended law caps a wage garnishment at the lesser of the two calculations.

A judgment creditor isn’t absolutely entitled to the amount figured under these formulas, however.

If the judgment being collected is for a debt other than support, a judgment debtor can seek a reduction in the amount of the  garnishment from each paycheck to the extent necessary for his support.  CCP 706.051.

Garnished-now what?

The only run of the mill creditor who can garnish your wages is a creditor who has already sued you and won a judgment.  That judgment entitles the creditor to levy bank accounts and garnish wages for 10 years or until the judgment is paid in full.  More about judgments.

The judgment accrues interest at 10% simple interest per year.

Two questions arise:

1.  Can you meet your current living expenses on the money left after a garnishment?

2.  Is this judgment just one part of a bigger debt problem?

The dangers of doing nothing are greater than just the other bills that don’t get paid while your wages are garnished.

Too often, the reduction in available cash puts your car or housing payments in jeopardy.  And, it probably pays a debt that is dischargeable in bankruptcy, as most unsecured debts are, while non dischargeable debts like taxes, student loans or child support go unpaid.

Here are some ideas on who to pay with the money remaining.

Your wage garnishment action items

See an experienced bankruptcy lawyer.  You want to know two things.

  • Can you petition the state court for a smaller garnishment? and,
  • Does bankruptcy make sense in light of the bigger picture of your income and expenses?

A bankruptcy will stop a wage garnishment. And, you may be able to recover the money taken from your check from the creditor as a preference.

If bankruptcy is an appropriate response, there is no point in paying the judgment creditor for another pay period.  Pick up the phone and get some advice.

More

How to interview a bankruptcy lawyer

Wage garnishment survival guide

   Bankruptcy’s effect on judgments

Fearmongering and The Decision to File Bankruptcy

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The unknown is often fearful.

My colleague Peter Orville wrote

It is natural to be afraid of doing something you’ve never done before, like filing for bankruptcy protection. This is especially true if you’ve heard stories about why you shouldn’t file bankruptcy.

Peter has it right.  Some trepidation is natural.

My beef is that the fear of bankruptcy is promoted by those with something to gain by demonizing bankruptcy.

Fearmongers hope to profit

The stories about why you shouldn’t file are plants.

Not growing plants, but like planted evidence:  something intended to trap, decoy, or lure, as criminals.

It’s the creditors, their cohorts, the credit scoring folks, and the debt settlement companies who want you to think that filing bankruptcy is the end of life as we know it.

You know why they do it?

Each of those sources profit if consumers are scared off from filing bankruptcy.

If they can keep you paying the debt, whether or not you can ever pay it off, or keep you scared enough to pay them to make it go away, they prosper.

No one sits in judgment 

My charge to clients is that bankruptcy is not painful.  Or at least, any pain  you experience is self inflicted.

You can make yourself (or allow yourself) to feel as miserable and worthless as you choose to do so.  No one associated with the courts, including trustees, is judgmental.

A debtor does not have to justify his choice of bankruptcy relief and does not have to prove he is “worthy” of a discharge.  Eligibility for a discharge, even after bankruptcy reform, is presumed.

I have a perverse admiration for clients who have endured the pain and despair of financial distress for as long as most of them have before seeking me out.

But life does not have to be that way;  bankruptcy is an honest and effective choice.

There is nothing to be afraid of.

More

How debt makes you stupid

What should bankruptcy cost

Credit reports heal

Should You Pay Your Creditors Rather Than File Bankruptcy?

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bankruptcy alternative

Is there an alternative to bankruptcy, my clients often ask. Can I realistically avoid filing bankruptcy?

A fellow bankruptcy lawyer outlined what it takes to get out of debt without bankruptcy.

  • make more money;
  • spend less on today’s expenses; and
  • use all your savings to pay off debt.

If you could do all three,  for long enough, and, your debt isn’t too large, it probably works.

I want to pose the question: even if that’s possible, is it smart?

Cost of paying off debt

What do you forgo in that scenario?

If it’s travel; lattes; and premium cable that go, I’m OK with that.

But, what if the things you do without are emergency reserves; health insurance; and retirement savings?  I think that continuing to live on the financial edge is a poor choice.

One small glitch, car trouble, ill health, or fewer hours at work, and your fine and honorable plan to pay comes unraveled.

Make good decisions about your future

Whether your financial difficulty was caused by bad luck or bad choices, don’t make a bad decision, driven by pride, to compound the trouble by living without a safety net.

Studies prove being in debt makes you stupid

Too many of my clients arrive in my office with the conviction that they incurred this debt and, by damn, they want to repay it.

At some level, I applaud that desire. But what are the likely consequences of repaying that debt if it means making no provision for financial stability now and in the future?

Have you just traded one sort of bad situation for another?

Part of reforming your financial situation involves looking beyond this month’s bills to the needs of the next decade and beyond.

Lots of folks got into credit card debt focusing on their ability to make the monthly minimums, rather than on their ultimate ability to pay the debt off.  They forget that minimum payments on most credit cards are set to keep you in debt for several decades.

Particularly in times of profound economic uncertainty, consider the merits of a fresh start and a make a plan for financial self sufficiency.

More

Secret alternative to bankruptcy

How to evaluate your choices about debt

Leave a legacy not a pile of debt

What you keep despite bankruptcy

Bank Account Safe From Credit Card Debt

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credit card offsetPossession is 9/10th of the the law, we’ve always been told.

With overdue Bank of America credit cards, my client worried that her new deposit at B of A would be seized by the bank to pay the cards.

After all, the bank would have possession of the commission check and a common law right to set off the deposit against the credit card debt.

Not to worry.  There’s a federal law  that protects bank accounts from credit card debt.

Credit cards can not offset

Federal Truth in Lending regulations explicitly prohibit a bank who is a card issuer from appropriating your deposit account to pay your debt on a card it issued.

(d)Offsets by card issuer prohibited.

(1) A card issuer may not take any action, either before or after termination of credit card privileges, to offset a cardholder‘s indebtedness arising from a consumer credit transaction under the relevant credit card plan against funds of the cardholder held on deposit with the card issuer.

All you need to know about judgments

12 CFR 1026.12 goes on to make clear that if the card issuer gets a judgment, this provision doesn’t insulate a deposit account from a judgment levy.

Nor does it keep the bank from depleting your account if you’ve agreed to pay the card automatically by electronic transfer.

Credit cards exception to common law rule

Offset, or setoff, (they seem to be interchangeable terms) means to net out what one party owes another against a debt that runs in the other direction.

Merriam Webster defines it  this way:

the reduction or discharge of a debt or claim by setting against it a distinct claim in favor of the debtor or party who is the object of the first claim (as in a lawsuit)

This principle is a mainstay of common law.

So, the Truth in Lending provision creates a statutory exception.

Bankruptcy discharge prohibits set off

At the end of a bankruptcy case, the provisions of the bankruptcy discharge prohibit a creditor from offsetting a pre bankruptcy debt against money the creditor owes you.

Section 524 of the Bankruptcy Code reads

(a)A discharge in a case under this title—

(2) operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor, whether or not discharge of such debt is waived;

So, if you discharged a personal loan from Bank of America, say, the bank cannot take your post bankruptcy deposits into your account to pay for the discharged debt.

All’s well

With federal law in mind, my client was able to deposit her check into her bank account, secure in knowing the bank couldn’t apply the money she needed to live on next week to pay overdue bank-issued cards.

And her bankruptcy case will wipe out the credit card debt altogether.

Is Your Choice Of Bankruptcy Chapters Really Dictated By Your Stuff?

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Through my Twitter feed came a link to the pro’s and con’s of filing bankruptcy from the business section of the Chicago Tribune.

Good chance to see how non lawyers see my world, I thought.

Bankruptcy was all about protecting “stuff”, said the writer, and the choice of chapters is driven by the kind of “stuff” you had.

Chapter 13 is for people who have equity in their property;  Chapter 7 is for people who have little and can’t meet their basic expenses, the article went on.

I could quibble about the dichotomy that’s set up that Chapter 7 filers have nothing and Chapter 13 filers have more. (Often, it’s the other way around).

I  further contest  the implied suggestion that the Chapter 7 discharge is broader than Chapter 13.  (It’s not.  In fact, the Chapter 7 discharge is a bit narrower.  It’s just quicker.)

But my real beef is the characterization that bankruptcy is about your stuff and how to keep it.

Not so, in my view.

Bankruptcy is about people, not possessions

Bankruptcy is all about protecting lives.  Sometimes it’s about giving up “stuff” and getting back your life.

Your old age is strongest reason to file bankruptcy

It’s about not paying forever for bad luck or bad choices.  It’s about freeing up money to provide for your future.  It’s  about freeing up mental energy to do something beyond juggle too-little money, subject to too many creditor claims.

Considering bankruptcy is a chance to evaluate what’s really important and what’s possible.

Sometimes, stepping back tells you the house is worth struggling for.  Sometimes, in the big picture, the house is really a dead weight on the important parts of your life.

Bankruptcy is about starting over, or reorganizing.  It’s about recognizing reality and doing something about it.  It’s about being an activist to take back your financial life.

Stuff be damned.

More

Hold or fold?  is bankruptcy the right choice?

Life after bankruptcy

 

@cathymoran

Image courtesy of mojmir_ch.

The Poker Player’s Rule About Getting Out of Debt

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You’ve got to know when to hold ’em,

know when to fold ’em;

know when to walk away,

know when to run...

So goes the gambler’s advice to the young card player in the hit Kenny Rogers song.

Hum along as we think about how we play our cards when we’re in debt: the hardest call is to know when to fold and file for bankruptcy.

Do you play a bad hand

With few exceptions, everyone wants to repay the debts they consider legitimate.

  • Paying your debts fits our self image and our values.We make heroes of  people who’ve scrimped, worked two jobs, gone without, to pay their debts in full.
  • Congress in 2005 made much of taking “personal responsibility” for your debts.  The pro creditor Congressmen cast bankruptcy as the choice of those unwilling to shoulder the consequences of their actions.
  • Those peddling credit shout that bankruptcy will cripple you in the credit market til the end of time.

If you’re in debt, it’s hard to know how sort your choices and to know which to discard and which to hold on to.

No one talks about the big picture cost of paying off debt.

No one talks about those whose bull headed commitment to payment blinded them to other needs and other financial threats.

No one talks about those who sacrifice and still fail to pay their way out of debt.

No one talks about debt-ridden elders with no hope of better times ahead.

So how do you assess your cards, so to speak, when choosing between get out of debt strategies?

Just like playing cards, the decision to commit to paying off your debts depends on the relationships between the cards you hold. It’s the relationship between the factors that are important, not hard and fast rules.  Let’s look at the factors.

cards-suits-pixabay

How much do you owe?  

HOLD:  the smaller your total debt, the more likely you can pay it off.

FOLD:  the larger the total debt, the longer it will take and therefore the more likely other events interfere.

How old are you?

HOLD:  the younger you are, the longer your remaining working life and your chances to catch up on other needs when debts are paid off.

FOLD:  the closer you are to retirement, the less likely it’s smart to continue struggling with debts.

Do you owe taxes, support, or mortgage arrears?

HOLD:  if  these critical kinds of debts form no significant part of your debt, a payment plan for other debts is OK

FOLD:  paying unsecured bills when you owe taxes, back family support or are behind on house payments is risky

How well are you fixed for retirement?

HOLD:  try to pay your debts if you have a solid pension or substantial retirement savings

FOLD:  if you are behind on saving for old age, your money is better spent on retirement than old debts

Do you have any reserves for emergencies or job loss?

HOLD:  if you have money available for the unexpected or the temporary loss of income, try to pay off debt

FOLD:  with no reserves, you make yourself even more vulnerable diverting money to existing debt

The biggest loss

What you want to avoid is throwing money after old debt in a campaign that can’t succeed, or that risks even more than your pride if you don’t make.

To live paycheck to paycheck, and starve your savings trying to do the impossible is not smart.  And it’s not necessary.

Kenny Rogers’ gambler told him:

That the secret to survivin’
Is knowin’ what to throw away
And knowin’ what to keep

Keep paying on old debts only if you hold the cards to succeed.  Otherwise, fold ’em, file bankruptcy, and draw some new cards for a fresh start.

More

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What should bankruptcy cost?

Credit scores heal

Does Bankruptcy Discharge A Judgment In California?

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591px-Geologic_map_California_opt

Nothing gets a person into a bankruptcy lawyer’s office quicker than being served with a lawsuit.

The prospect of losing a lawsuit and having a judgment entered against them terrifies.

Callers are frantic to see if they can file bankruptcy before judgment is entered.

They worry that once a judgment is entered, their options in bankruptcy vanish.

Not so.

The debt underlying a California judgment remains just as dischargeable as it was before the case was filed.

And,  a judgment in California does not automatically become a lien on the defendant’s property.

It takes another step in California for a money judgment to become a lien.  And as long as there is no lien, the debt is unsecured and  potentially dischargeable in bankruptcy.

Discharge turns on kind of debt

Contrary to what some dishonest debt collectors will tell you, judgments are just as dischargeable in bankruptcy as the underlying debt is.

Whether an unsecured debt can be discharged in bankruptcy looks at  the nature of the debt, not whether a court has ruled on the merits of the claim.

So,

  • Child support is non dischargeable, whether or not there is a judgment.
  • Debts incurred by fraud are non dischargeable in bankruptcy, if the creditor can prove fraud to bankruptcy standards.
  • Credit card debts honestly incurred are dischargeable, judgment or no.

Liens change everything

What does change the dynamic is an abstract of judgment or a notice of judgment lien.

These documents do create a lien on the judgment debtor’s assets.

Recording an abstract of judgment creates a lien on real property in the county in which it is filed.  A notice of judgment filed with the California Secretary of State creates a judgment lien on personal property located in the state.

If the lien cannot be avoided in bankruptcy, the judgment creditor has obtained an advantage.

What my friend Jay Fleischman’s post about civil judgments in New York and their bankruptcy implications points out is the way state law impacts the operation of federal bankruptcy law.

The rights that each party in a bankruptcy case brings to the bankruptcy case originate in state law.

It also demonstrates why lawyers are licensed in each state and why my California law license does not entitle me to practice bankruptcy law in New York.

And why bankruptcy is not a do-it-yourself project.

More

When you’re served with a lawsuit

Three debts bankruptcy doesn’t discharge

Everything you need to know about judgments

Wage garnishment survival guide

Who are the really scary creditors

Image in the public domain, courtesy of Wikimedia.

The Difference Between Good Bankruptcy Lawyer and Great Bankruptcy Lawyer

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question-markFinding the right bankruptcy lawyer may be the difference between a successful bankruptcy and a nightmare.

Choosing a lawyer you can talk to is critical.

You’ll be disclosing lots of information normally held confidential.

But there’s more.

It’s not just a lawyer you can tell your secrets to.

You need to find a lawyer willing to answer your questions, over and over, if necessary, until you understand the choices that you must make in filing bankruptcy.

Until you understand the issues and the consequences, you can’t play your position on the bankruptcy team.

Choices after deciding to file

Some things a client doesn’t have to truly understand to file bankruptcy: how the means test works, or doesn’t work, is one of them.

The debtor need only validate some of the information in the form.

But other bankruptcy issues require the client to make choices and perhaps confront risks.

Is the loan repayment to your parents a recoverable preference?

Does the recent use of your credit card make you susceptible to the charge of incurring debt by fraud?

Are you at risk of a UST challenge to your Chapter 7 case as an abuse?

Decisions surrounding these issues are, in the end, the client’s decision. The factors are complex, and in this day of “new” bankruptcy law, sometimes uncertain.

The client needs to feel absolutely comfortable asking their counsel to explain the issue, assess the risks, and explore alternatives with them.

The lawyer needs to be capable of explaining without jargon or presumption.

The bankruptcy problem your lawyer can’t handle

So I would add to the list of qualities in superior bankruptcy counsel: openness to the layman’s questions.

Great bankruptcy lawyers are willing to restate and reanalyze the options until the client understands.  You need to feel comfortable saying you don’t understand and asking that the lawyer try another way to say it.

A lawyer who is not capable of making you a partner in the conduct of the case may end up excluding you from considerations that rightfully belong to you, the client.

More

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What should bankruptcy cost

Can you afford the bankruptcy alternatives

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

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

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