Northern California Bankruptcy Lawyer

On The Bankruptcy Soapbox

The Soap Box

Does Bankruptcy Discharge A Judgment In California?

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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

Questions to ask a prospective bankruptcy lawyer

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

Image courtesy of openclipart.org

Do California Seniors Need to File Bankruptcy?

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Rocking chair on the deck - Antigua, Mar 2010California, it turns out, is a great place to retire.

Not because of the cost of living, certainly.  In spite of the cost of living.

Because California exemptions are very generous to those of retirement age.

Those exemptions effectively make many indebted seniors collection-proof.

How exemptions protect seniors

Exemption laws come from the idea that, even if you owe money to creditors, a certain level of income and assets are protected from collection.

  • If you earn a wage, California law caps the amount of your wages that can be garnished at 25% of your after tax paycheck.
  • Pension income cannot be levied, before or after it’s paid to a retiree.
  • IRA’s are exempt to the extent necessary for support
  • The California homestead is $175,000 for individuals over 65
  • Social Security is exempt everywhere

It’s not hard to see that a California senior with home and retirement income might have nothing that a creditor with a judgment could reach.

That doesn’t mean that creditors will stop trying to collect.  They can bug a retiree, using shame, fear, and annoyance to get them to voluntarily pay a debt they owe.

But there may be no way for the creditor to compel payment of its claim at the present.

Is bankruptcy necessary

So, one of my tests for do you need to file bankruptcy  looks at whether bankruptcy would allow you to keep something that you might otherwise lose to a creditor who gets a judgment against you.

If the answer is yes, bankruptcy may be appropriate.

If the answer is no, it may be different.  If that creditor-with-a-judgment can’t tap your bank account or intercept your pension check, functionally, bankruptcy doesn’t make your situation any better.

You’re safe from your creditors.

Is bankruptcy helpful

But life isn’t all about money.  Peace of mind has a value not measured in dollars and cents.

For some seniors, the fact that they owe money they can’t pay is a source of stress.  Even when they know that the pushy, threatening collector can’t take anything from them, they lose sleep and emotional security.

Bankruptcy might have a benefit to those stressed out seniors, not because it’s necessary to preserve their assets, but because it’s necessary to for their peace of mind.

Bankruptcy and the next generation

Lots of elders are intent on leaving something financial to their heirs.

I hear it repeatedly from those getting along in age:  they want to leave their home to their kids.  They want to keep paying on a life insurance policy, even though no one is dependent on them for their care.  They are stretching themselves financially to give some value to their heirs.

Here’s where bankruptcy makes it possible to leave an inheritance to the next generation.

The exemptions that are available in bankruptcy are not available to a probate estate.  Probate will protect the homestead if there is a surviving spouse.  No surviving spouse who  needs the home to live in, and the home may be sold to pay the elder’s debts before anything goes to the offspring.

Most revocable trusts direct the successor trustee to pay the debts of the person who has passed away before distributing the trust estate to the beneficiaries.

Neither probate nor revocable trusts make it possible to avoid judgment liens that attach to homes.  Bankruptcy does.

So, by eliminating debts and perhaps liens as well, a senior intent on leaving a financial legacy to their survivors maximizes their gift by wiping out their debts during their life time.

Not a bad thing, perhaps.

More

Passing a home to kids without probate or risk

Image courtesy of Ed Yourdon and Flickr.

Debt Actually Makes You Stupid

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5175015713_3641d60dde_zIt’s easy to tell ourselves that getting into debt was stupid.

Maybe, maybe not.

Lots of debt happens without making bad decisions.  Think of medical bills. Natural disasters.  Divorce.

But regardless of how you got in debt, there’s more bad news.

Just being in debt makes you stupid.

Stupid, as in, your IQ goes down under the stress of being in debt.

Stupid, as in, you are likely to make poor choices about other life choices in addition to money.

Stress suppresses intelligence

Researchers at Harvard, Princeton and the University of Warwick found that financial worries impeded not just thinking about money issues, but also spatial and cognitive tests.

People worrying about having enough money to pay their bills tend to lose temporarily the equivalent of 13 IQ points, scientists found when they gave intelligence tests to shoppers at a New Jersey mall and farmers in India.

Image courtesy of Flickr and Manuel Scheikl.

Fear keeps folks from bankruptcy relief

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filing bankruptcy

Those who aren’t living the American dream of upward mobility and financial security seem to think that’s a matter for shame.

Perhaps the second most frequent question would-be clients ask me is whether the fact that they filed bankruptcy will be

  • in the paper,
  • disclosed to their employer, or
  • discovered by their family or friends.

[The answer is that it’s unlikely.]

They are paralyzed by what they perceive as shame in not being a financial success in a world that too often confuses money with virtue.

The bankrupt are better off

A couple of objective observations are in order.

  • A university study of some years ago found that one in seven American families would be better off if they would file bankruptcy.
  • Second, millions American families have filed bankruptcy.

Chances are very good that several of the families around my petrified client have filed bankruptcy, unbeknownst to them.

The study about being “better off” resonates particularly with me, as I see individuals struggling to pay credit card debt, where the interest has tripled when a payment was late, while at the same time, they have no emergency cash reserves, no retirement savings, and no health insurance.

While their choices are noble, they aren’t wise.

These people live on the financial edge so that the credit card companies get their minimum payment.  They go without health care, an emergency fund, and even without food to honor their commitments.

I tell my questioner that bankruptcy is a matter of public record, so anyone who wants to find out who has filed can do so.

But, I ask, have you recently read the news of individual bankruptcy filings?

Such is not the fare of papers where I practice.  With some thought, they begin to realize how insignificant the fear of exposure is next to the financial realities of their situation.

The human creature is pretty amazing that it will live with the constant stress of overwhelming indebtedness rather than risk that others learn of its pain.

It doesn’t have to be that way.

More

Debt is unhealthy

Debt makes you stupid

What’s life really like after bankruptcy

 

 

What Everyone Knows About Bankruptcy: Not

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torture deviceOther professionals should know better than to advise people about the workings of bankruptcy.

And if they don’t know better, they should be made to pay, in some exquisitely painful way, for the harm they inflict.

The rack seems good to me.

The terrified client in my office was told by her accountant that if she filed Chapter 13 to save her home, the court would not allow her to buy prescription dog food for an ailing 16 year old pet!

Further, the accountant went on to declare that in Chapter 13, the debtor could pay only for housing, food and gas: nothing more. No maintenance for the house, no insurance, no clothes, no medical care.

Of course, the accountant was dead wrong. Articulate but wrong.

Means test and budgets in Chapter 13

So I explained the operation of Chapter 13, how the means test works, and the balance between the debtor’s reasonable living expenses and the claims of creditors. And assured the client that she can provide for her treasured pet for the balance of its life.

Then I fumed.

I’m resigned in the age of the internet that new clients have encountered lots of bad information on the web. There is no competency examination before anyone with a browser and an internet connection can opine on any subject.

The most trusted advice on a criminal law site recently turned out to be from a 15 year old whose knowledge came from TV!

But the source of this utterly distorted information holds a professional license in another field; that license gave apparent authority to the tales of horror she told my client.

How was the client to know it was tripe, pure tripe?

It took me two hours to find and eradicate the externally caused fears in my client and the self-generated terrors she’d nurtured based on bad information.

Can I count on my readership to bail me out of jail if I find the accountant providing worthless and harmful bankruptcy advice?

Image courtesy of Sandeep Thukral

Long Term Tax Savings When You File Bankruptcy Rather Than Settle Debts

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tax biteSettle your debts outside of bankruptcy and you may be bitten by taxes you didn’t expect years later.

Everyone I talk to would rather cut a deal with their creditors than file bankruptcy.  It’s universal.

But here’s the killer reason why bankruptcy alone protects homeowners from a unexpected  tax consequence down the road.

Debt forgiven outside of bankruptcy gets deducted from the basis of your home.   Result:  more potentially taxable capital gains on sale.

It works like this.

Tax treatment of cancelled debt

Debt forgiven in bankruptcy or while insolvent gets an exception from the standard tax rule that cancelled debt is taxable as income.  IRC 108.

But that tax benefit comes with a delayed cost.  The amount of the debt forgiven is deducted from the basis of your assets.

So if the tax basis in your home was $200,000 and the debt that was discharged or settled was $200,000, you end up with a house with zero basis.

Sell that house and every dollar you receive is capital gain.  Ouch!

Special tax rule for homes in bankruptcy

But wait! Wait!  There’s an exception to the reduction of basis rule that shields your principal residence from reduction in basis.  But that exemption applies only if  your debt was cancelled in bankruptcy and you claimed your home as exempt.

So, the basis in your home is not reduced if the debt was forgiven in bankruptcy, rather than an out-of-court settlement, and you claimed an exemption.   IRC 1017(c),

So, when you consider your alternatives for getting yourself out of debt, homeowners need to look beyond this year’s tax return to the point at which they may sell their house.  Every dollar in basis excludes that dollar from being taxed as capital gain.

More

How tax exception for forgiven debt works

The ugly truth about debt settlement

How bankruptcy deals with taxes

What Game Are We Scoring?

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score card flickr yoppyGetting credit after bankruptcy is the most frequent search term that bring visitors to Bankruptcy in Brief, my encyclopedic sister site on bankruptcy.

In these visitors’ minds, their credit score is a central concern.

It’s ironic that readers, saddled with enough debt to consider bankruptcy, ask about the impact of a bankruptcy on their credit score.

It’s the same face to face. …often in the first 5 minutes of our meeting.

Others  proudly tell me that they have “perfect credit”: that translates as “never having missed a minimum payment.”

Some follow with a declaration that they won’t file bankruptcy if it will hurt their credit score.

Huh?

What they miss in their decision making process is that they can never pay off the credit they have! And their first concern seems to be how soon they can get back into the credit market.

Hype about credit scores

Identity theft and the misuse of credit scores for employment and insurance purposes have heightened our awareness of credit reports and credit scores.

This legitimate concern is hyped by those who, having created the credit scoring “game” and cemented their lock on the rules of the game, then want to sell us services to protect us from damage to our scores.

What most consumers don’t understand is that credit scoring is a purely arbitrary analysis. The rules are controlled by each score provider.  They can change without notice or review.

Credit scoring is not regulated, objective, or transparent. It seems your score can suffer from having too much credit, too little credit, or even for astutely shopping for better interest rates on purchases.

Refocus on net worth

Let’s focus on our personal balance sheet, rather than our ability to acquire more debt, as a salutary exercise.

Let’s look at our savings, our preparation for retirement, the adequacy of our insurance protection as the measure of our financial health.

Let’s ask ourselves first how long it will take us to repay the debt we already have . What would we save if we weren’t paying interest on credit card debt?

Let’s learn to find our self worth in something other than the kind of credit card we carry or the credit score someone else assigns us

Image courtesy of Flickr and Yoppy.

Four Factors Drive The Cost Of Bankruptcy

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When you’re flat broke and thinking about bankruptcy, cheaper sure looks better.

If a lawyer will do your Chapter 7 for $600, what’s the point of paying $1000? Or even $2000?

Like answers to many legal questions, it depends.

Bankruptcy relief depends on your facts

Whether to file bankruptcy, or whether to file now, rather than later, depends on how the facts of your financial situation interact with bankruptcy law.

Your bankruptcy lawyer is charged with gathering those facts and analyzing them so that you get the most debt relief the system can offer.

If your bankruptcy lawyer doesn’t dig deep enough, or think broadly enough, you may hit avoidable snags in your case.

With the caveat that there is no direct and sure-fire connection between cost and quality, let’s talk about what it costs to escape from broke. [Read more…]

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

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